Annie's Homemade is considering selling its ice cream to a regional supermarket chain that would attach a markup to the ice cream and sell it to end consumers. Annie's has a discount rate of 10% and it gathered the following estimates regarding this capital investment opportunity: Initial investment Working capital needed Annual net cash inflows in each of years 1-5 Working capital released at the end of year 5 Salvage value of equipment at the end of year 5 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Required: 1. What is the present value of the annual net cash inflows ($65,000) received in each of years 1-5? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. The present value is $ 240,000 $ 40,000 $ 65,000 $ 40,000 $ 50,000 2. What is the present value of the working capital released at the end of year 5? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. The present value is 3. What is the present value of the equipment's salvage value received at the end of year 5? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. The present value is 4. What is the net present value of this investment opportunity? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. The net present value is
Annie's Homemade is considering selling its ice cream to a regional supermarket chain that would attach a markup to the ice cream and sell it to end consumers. Annie's has a discount rate of 10% and it gathered the following estimates regarding this capital investment opportunity: Initial investment Working capital needed Annual net cash inflows in each of years 1-5 Working capital released at the end of year 5 Salvage value of equipment at the end of year 5 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Required: 1. What is the present value of the annual net cash inflows ($65,000) received in each of years 1-5? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. The present value is $ 240,000 $ 40,000 $ 65,000 $ 40,000 $ 50,000 2. What is the present value of the working capital released at the end of year 5? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. The present value is 3. What is the present value of the equipment's salvage value received at the end of year 5? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. The present value is 4. What is the net present value of this investment opportunity? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. The net present value is
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Annie's Homemade is considering selling its ice cream to a regional supermarket chain that would attach a markup to the ice cream
and sell it to end consumers. Annie's has a discount rate of 10% and it gathered the following estimates regarding this capital
investment opportunity:
Initial investment
Working capital needed
Annual net cash inflows in each of years 1-5
Working capital released at the end of year 5
$ 240,000
$ 40,000
$ 65,000
$ 40,000
$50,000
Salvage value of equipment at the end of year 5
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.
Required:
1. What is the present value of the annual net cash inflows ($65,000) received in each of years 1-5?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
The present value is
2. What is the present value of the working capital released at the end of year 5?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
The present value is
3. What is the present value of the equipment's salvage value received at the end of year 5?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
The present value is
4. What is the net present value of this investment opportunity?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
The net present value is
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