Caldwell Corporation is considering an investment proposal that will require an initial outlay of $804,000 and would yield yearly cash inflows of $200,000 for nine years. The company uses a discount rate of 10%. What is the NPV of the investment? Present value of an ordinary annuity of $1:
$\begin{array}{|l|r|r|r|}
\hline&{8 \%} & {9 \%} & 10 \% \
\hline 1 & 0.926 & 0.917 & 0.909 \
\hline 2 & 1.783 & 1.759 & 1.736 \\hline 3 & 2.577 & 2.531 & 2.487 \
\hline 4 & 3.312 & 3.24 & 3.17 \
\hline 5 & 3.993 & 3.89 & 3.791 \
\hline 6 & 4.623 & 4.486 & 4.355 \
\hline 7 & 5.206 & 5.033 & 4.868 \
\hline 8 & 5.747 & 5.535 & 5.335 \
\hline 9 & 6.247 & 5.995 & 5.759 \
\hline
\end{array}$

Question

Caldwell Corporation is considering an investment proposal that will require an initial outlay of $804,000 and would yield yearly cash inflows of $200,000 for nine years. The company uses a discount rate of 10%. What is the NPV of the investment? Present value of an ordinary annuity of $1:
$\begin{array}{|l|r|r|r|} 
\hline&{8 \%} & {9 \%} & 10 \% \
\hline 1 & 0.926 & 0.917 & 0.909 \
\hline 2 & 1.783 & 1.759 & 1.736 \\hline 3 & 2.577 & 2.531 & 2.487 \
\hline 4 & 3.312 & 3.24 & 3.17 \
\hline 5 & 3.993 & 3.89 & 3.791 \
\hline 6 & 4.623 & 4.486 & 4.355 \
\hline 7 & 5.206 & 5.033 & 4.868 \
\hline 8 & 5.747 & 5.535 & 5.335 \
\hline 9 & 6.247 & 5.995 & 5.759 \
\hline
\end{array}$

Quizplus · Accepted Answer

The NPV is calculated using the formula: NPV = (Cash inflow x PVIFA) - Initial investment. From the table, the present value interest factor for an annuity (PVIFA) at 10% for 9 years is 5.759. Thus, NPV = ($200,000 x 5.759) - $804,000 = $1,151,800 - $804,000 = $347,800.

Caldwell Corporation Is Considering an Investment Proposal That Will Require