Question

Ivanhoe Company is considering a long-term investment project called ZIP. ZIP will require an investment of $128,100. It will have a useful life of 4 years and no salvage value Annual cash inflows would increase by $79,100, and annual cash outflows would increase by $38,100. The company's required rate of return is 10%. Click here to view the factor table. Calculate the net present value on this project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses es (45). Round present value answer to 0 decimal ploces, es. 125. For colculation purposes, use 5 decimal places as displayed in the: foctor toble provided.) Net present value Whether this project should be accepted? The project should be

Answer 1

The net present value (NPV) of the project is $120,726.33. Therefore, the project should be accepted.

Step-by-step explanation:

The net present value (NPV) of a project is a measure used to determine its profitability. To calculate the NPV, we need to discount the cash inflows and outflows of the project to their present values using the required rate of return. In this case, the cash inflow for each year is $79,100 and the cash outflow is $38,100. We can calculate the present value of the cash inflows and outflows using the following formula:

NPV = (Cash inflow - Cash outflow) x (1 - (1 + rate of return)-n)/rate of return

Substituting the given values into the formula, we can find the NPV of the project:

NPV = (79100 - 38100) x (1 - (1 + 0.1)-4)/0.1 = $120,726.33

Since the NPV is positive, the project should be accepted as it is expected to generate a positive return.