Santana Co. is evaluating a project requiring a capital expenditure of $790,000. The project has an estimated life of 4 years and no salvage value. The estimated net income and net cash flow from the project are as follows: YearNet IncomeNet Cash Flow1$ 75,000$280,0002100,000300,0003109,000200,0004 36,000 120,000 $320,000$900,000 The company's minimum desired rate of return is 9%. The present value of $1 at compound interest of 9% for 1, 2, 3, and 4 years is 0.9174, 0.8417, 0.7722, and 0.7084 respectively. Determine the net present value of the project. Should Santana proceed?

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Answered: Santana Co. is evaluating a project…

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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Santana Co. is evaluating a project requiring a capital expenditure of $790,000. The project has an estimated life of 4 years and no salvage value. The estimated net income and net cash flow from the project are as follows:

Year	Net Income	Net Cash Flow
1	$ 75,000	$280,000
2	100,000	300,000
3	109,000	200,000
4	36,000	120,000
	$320,000	$900,000

The company's minimum desired rate of return is 9%. The present value of $1 at compound interest of 9% for 1, 2, 3, and 4 years is 0.9174, 0.8417, 0.7722, and 0.7084 respectively.

Determine the net present value of the project. Should Santana proceed?

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