Net Present Value For discount factors use Exhibit 12B-1 and Exhibit 12B-2. Talmage Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of $2,700,000. Producing the printer requires an investment in new equipment costing $2,880,000. The printer has a projected life cycle of 5 years. After 5 years, the equipment can be sold for $360,000. Working capital is also expected to decrease by $360,000, which Talmage will recover by the end of the new product’s life cycle. Annual cash operating expenses are estimated at $1,620,000. The required rate of return is 8%. Required: 1. Prepare a schedule of the projected annual cash flows. Year Item Cash Flow 0 $fill in the blank 2 fill in the blank 4 Total $fill in the blank 5 1–4 $fill in the blank 7 fill in the blank 9 Total $fill in the blank 10 5 $fill in the blank 12 fill in the blank 14 fill in the blank 16 fill in the blank 18 Total $fill in the blank 19 2. Calculate the NPV using only discount factors from Exhibit 12B.1 $fill in the blank 20 3. Calculate the NPV using discount factors from both Exhibits 12B.1 and 12B.2 $fill in the blank 21

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Net Present Value

For discount factors use Exhibit 12B-1 and Exhibit 12B-2.

Talmage Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of $2,700,000. Producing the printer requires an investment in new equipment costing $2,880,000. The printer has a projected life cycle of 5 years. After 5 years, the equipment can be sold for $360,000. Working capital is also expected to decrease by $360,000, which Talmage will recover by the end of the new product’s life cycle. Annual cash operating expenses are estimated at $1,620,000. The required rate of return is 8%.

Required:

1. Prepare a schedule of the projected annual cash flows.

Year	Item	Cash Flow
0		$fill in the blank 2
		fill in the blank 4
	Total	$fill in the blank 5
1–4		$fill in the blank 7
		fill in the blank 9
	Total	$fill in the blank 10
5		$fill in the blank 12
		fill in the blank 14
		fill in the blank 16
		fill in the blank 18
	Total	$fill in the blank 19

2. Calculate the NPV using only discount factors from Exhibit 12B.1
$fill in the blank 20

3. Calculate the NPV using discount factors from both Exhibits 12B.1 and 12B.2
$fill in the blank 21

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