question archive Tall Trees, Inc
Tall Trees, Inc
Subject:AccountingPrice:2.86 Bought8
Tall Trees, Inc. is using the net present value (NPV) when evaluating projects. You have to find the NPV for the company's project, assuming the company's cost of capital is 6.89 percent. The initial outlay for the project is $441,340. The project will produce the following after-tax cash inflows of
Year 1: 134,724
Year 2: 23,839
Year 3: 3,641
Year 4: 125,818
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NPV=-$195,072.36
Step-by-step explanation
STEP 1
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=134,724/1.0689+23,839/1.0689^2+3,641/1.0689^3+125,818/1.0689^4
=126,039.8540+20,864.7833+2981.3259+96,381.6749
=$246,267.6381
STEP 2
Hence NPV=Present value of inflows-Present value of outflows
=$246,267.6381-$441,340
= -$195,072.36
