### Recent Question/Assignment

Time Value of Money
1. Net Present Value (NPV)
- is found by subtracting the initial investment from the present value of the cash inflow discounted at a rate equal to the firms cost of capital.
NPV – present value of cash inflows – initial investment
e.g. The calculation of NPV’s for benefit company's capital expenditure alternatives
Use Table A-4 Project A
Annual cash inflow \$14,000
X present value annuity interest factor, PVIF 3.791
present value of cash inflow \$53,000
- initial investment 42,000
Net present value (NPV) \$11,074
Use table A-3 Project B
Cash inflow Present-value interest factor (PVIF) Present value
(1)X(2)
Year (1) (2) (3)
1 \$28,000 .909 \$25,452
2 12,000 .826 9,912
3 10,000 .751 7,510
4 10,000 .683 6,830
5 10,000 .621 6,210
Present value of cash inflow \$55,914
45,000
\$10,914
- Initial investment
Net Present Value (NPV)
Decision Criteria
If NPV is greater than \$ 0, accept the project if NPV
Is less than \$0 , reject the project.
EXERCISE
Dane cosmetics is evaluating a new program-mixing machine. The asset requires an initial investment of \$24,000 and will generate after tax cash inflow of \$5,000 per year for eight years. For each of the required rate of return listed:
Calculate the net present value
indicate whether to accept or reject the machine