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Hsung Company accumulates the following data concerning a proposed capital investment: cash cost $215,000, net annual cash flows $40,000, present value factor of cash inflows for 10 years 5.65 (rounded). (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45).)

Determine the net present value, and indicate whether the investment should be made.

Net present value _________ $

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Tundexi

Answer:

Particulars                         Amount   PV at 10 years   PV of cash inflows

Cash inflow for 1 - 10 yrs   $40,000          5.65                   $226,000

Less: Initial investment      $215,000           1                       $215,000

Net Present value                                                                  $11,000

Net present value = $11,000. So, the Investment should be made as it has positive NPV

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