(Present value tables are required.)Mansfield Motors is evaluating a capital investment opportunity.This project would require an initial investment of $30,000 to purchase one machine and $10,000 to purchase the other machine (both machines are required).The project equipment will have a residual value at the end of its life of $3,000.The useful life of the equipment is 5 years.The new project is expected to generate additional net cash inflows of $12,000 per year for each of the five years.Mansfield Motors' required rate of return is 14%.The net present value of this project is closest to:

Question

Quizplus · Accepted Answer

First, we need to calculate the present value (PV) of the net cash inflows using the formula for the PV of an annuity:

PV = C x [(1 - (1 + r)^-n) / r], where C is the cash flow, r is the required rate of return, and n is the number of periods.

PV of net cash inflows = $12,000 x [(1 - (1 + 0.14)^-5) / 0.14] = $41,202

Next, we need to calculate the PV of the initial investment and the residual value:

PV of initial investment = -$40,000 (negative because it is a cash outflow)
PV of residual value = $3,000 / (1 + 0.14)^5 = $1,347

Finally, we can calculate the net present value (NPV) of the project by subtracting the PV of the initial investment and the PV of the residual value from the PV of the net cash inflows:

NPV = $41,202 - $40,000 - $1,347 = $2,755

Therefore, the closest answer choice is C, which is $2,753.

(Present Value Tables Are Required