Six years ago,Neighborhood Hardware paid a contractor $45,000 to expand the store.At that time,the company calculated a net present value of about $6,000 for the expansion.Now,the company believes that the investment increased annual cash inflows by $8,000 per year for each of the six years.The company has a desired rate of return of 10%.Ignoring income tax considerations,what was the net present value actually achieved for this capital investment? (Do not round your intermediate calculations.Round your answer to the nearest dollar. )

Question

Quizplus · Accepted Answer

Revised estimate:
Net present value = (Expected annual cash flows x PV factor)- Cost of investment
Net present value = ($8,000 x 4.355261)- $45,000 = $34,842.09 - $45,000 = $(10,158)(rounded)
PV factor from Appendix Table 2 (n = 6,i = 10)

Six Years Ago,Neighborhood Hardware Paid a Contractor $45,000 to Expand