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Financial & Managerial Accounting
Found in: Page 1084
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

If Quail Company invests $50,000 today, it can expect to receive $10,000 at the end of each year for the next seven years, plus an extra $6,000 at the end of the seventh year. What is the net present value of this investment assuming a required 10% return on investments? (Round present value calculations to the nearest dollar.)

The net present value of the project is $1,763

See the step by step solution

Step by Step Solution

Step-by-Step Step 1: Definition of net present value

The net present value is defined as the difference between the present value of the cash inflows and the present value of cash outflows.

Step 2: Computation of net present value

Chart Values are based on:
N = 7, I = 10%

Cash Flow

Select chart

Amount

X

PV Factor

=

Present Value

Annual cash flow

Present value of an annuity of 1

10,000

X

4.8684

48,684

Residual Value

Present value of 1

6,000

X

0.5132

3,079

Present values of cash inflows51,763
Immediate cash outflows-50,000
Net present value1,763

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