Goergen Corporation is considering a capital budgeting project that would require an initial investment of $700,000. The investment would generate annual cash inflows of $267,000 for the life of the project, which is 4 years. The company's discount rate is 10%. The net present value of the project is closest to:Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

Question

Quizplus · Accepted Answer

To calculate the net present value (NPV), we first need to find the present value of the annual cash inflows. Using a discount rate of 10% over 4 years, we can use the Present Value of an Annuity (PVA) formula or a financial table to find the discount factor. The discount factor for 10% over 4 years is approximately 3.170. Therefore, the present value of the cash inflows is $267,000 * 3.170 = $846,390. Subtracting the initial investment of $700,000 from this amount gives us an NPV of approximately $146,390, which is closest to option C, $146,123.

Goergen Corporation Is Considering a Capital Budgeting Project That Would