Q1a: Complete Problem 14.1 on page 269 of the Collier text (solution is on page 501-502). Next work the problem again using the following variables: project yield annual net cash inflows are $10,500 for the next five years; interest rate of 16.5%, and the initial investment of $33,000. The net present value for this project after considering the new variables mentioned above is:
You are terribly misinformed, Kathy! Jiskha tutors have no access to your text.
6300.01
To find the net present value (NPV) of a project, we need to calculate the present value of each cash inflow and outflow and then subtract the initial investment.
Let's start with the original problem in the Collier text:
Step 1: Calculate the present value of each cash inflow (annual net cash inflows of $10,500 for the next five years) using the interest rate of 16.5%.
To calculate the present value of each cash inflow, we can use the formula: PV = CF / (1 + r)^n, where PV is the present value, CF is the cash flow, r is the interest rate, and n is the number of years.
For Year 1: PV1 = $10,500 / (1 + 0.165)^1
For Year 2: PV2 = $10,500 / (1 + 0.165)^2
For Year 3: PV3 = $10,500 / (1 + 0.165)^3
For Year 4: PV4 = $10,500 / (1 + 0.165)^4
For Year 5: PV5 = $10,500 / (1 + 0.165)^5
Step 2: Calculate the present value of the initial investment ($33,000) using the same formula:
PV(initial investment) = -$33,000 / (1 + 0.165)^1 (since it is an outflow)
Step 3: Sum all the present values of the cash inflows and outflows:
NPV = PV1 + PV2 + PV3 + PV4 + PV5 + PV(initial investment)
Now, let's work on the problem again using the new variables mentioned:
Step 1: Calculate the present value of each cash inflow (annual net cash inflows of $10,500 for the next five years) using the interest rate of 16.5%.
To calculate the present value of each cash inflow, we can use the formula: PV = CF / (1 + r)^n, where PV is the present value, CF is the cash flow, r is the interest rate, and n is the number of years.
For Year 1: PV1 = $10,500 / (1 + 0.165)^1
For Year 2: PV2 = $10,500 / (1 + 0.165)^2
For Year 3: PV3 = $10,500 / (1 + 0.165)^3
For Year 4: PV4 = $10,500 / (1 + 0.165)^4
For Year 5: PV5 = $10,500 / (1 + 0.165)^5
Step 2: Calculate the present value of the initial investment ($33,000) using the same formula:
PV(initial investment) = -$33,000 / (1 + 0.165)^1 (since it is an outflow)
Step 3: Sum all the present values of the cash inflows and outflows:
NPV = PV1 + PV2 + PV3 + PV4 + PV5 + PV(initial investment)
By substituting the values into the equations and performing the calculations, you will find the net present value for this project after considering the new variables mentioned above.