1. Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $163,796 and have an estimated useful life of 6 years. It will be sold for $62,300 at that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $28,600. The company’s borrowing rate is 8%. Its cost of capital is 10%.
Calculate the net present value of this project to the company and determine whether the project is acceptable. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, e.g. 125.)
2. Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $232,065, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $46,200 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $240,817, will have a total useful life of 11 years, and will produce net annual cash flows of $39,700 per year.
Evaluate the success of the project. Assume a discount rate of 12%. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Original estimate net present value?
Revised estimate new present value?