Use the information below to answer the following questions.
Han Ltd supplies chilli paste to large supermarket chains. The company is currently considering scrapping the old processor and investing in a new processor. Information about the investment is as follows:
$$\begin{array} { l r }
\text { Initial investment in processor } & \$ 105,000 \
\text { Operating cash flows over next 5 years: } & \
\quad \text { Cash receipts } & \$ 50,000 \
\quad \text { Cash payments } & \$ 20,000 \
\text { Residual value of processor in 5 years } & \$ 5,000 \
\text { Required rate of return } & 8 \% \
\text { Depreciation per annum } & \$ 20,000
\end{array}$$
-Refer to the table above.The net present value (rounded)of the investment is:

Question

Use the information below to answer the following questions.
Han Ltd supplies chilli paste to large supermarket chains. The company is currently considering scrapping the old processor and investing in a new processor. Information about the investment is as follows:
 $$\begin{array} { l r } 
\text { Initial investment in processor } & \$ 105,000 \
\text { Operating cash flows over next 5 years: } & \
\quad \text { Cash receipts } & \$ 50,000 \
\quad \text { Cash payments } & \$ 20,000 \
\text { Residual value of processor in 5 years } & \$ 5,000 \
\text { Required rate of return } & 8 \% \
\text { Depreciation per annum } & \$ 20,000
\end{array}$$
-Refer to the table above.The net present value (rounded)of the investment is:

Quizplus · Accepted Answer

The net present value (NPV) of the investment can be calculated by finding the present value of the cash inflows (operating cash flows and residual value) and subtracting the initial investment. The operating cash flows are $30,000 per year ($50,000 receipts - $20,000 payments) for 5 years. Using the required rate of return of 8%, the present value of these cash flows and the residual value can be calculated and summed up, then subtract the initial investment of $105,000. The closest value to the calculated NPV is $18,195, making option A correct.

Use the Information Below to Answer the Following Questions -Refer to the Table Above