Net Present Value Use Exfibit 128.1 and Exhibit 120.2 to locate the present value of an annuity of 51 , which is the amount to be multipled thes the future annual cash flow amount. Each of the following scenanos is independent. Assume that ali cash flows are after-tax cash flows. a. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits mil be s4ap,o00 per year, The system costs $2,050,000 and will last 10 years. 4. Evee Cardenas is interested in investing in a worner's specialty shep. The cost of the investment is $1s0,000. 5 he estimates that the return fram owning her own shop will be \$55,000 per vear. She estimates that the shop will have a-useful ife of 5 vears. c. Barker Company calculated the NPV of a project and found 7 to be 553,900 . The projects life nas estimabed to be 8 yoars. The required rate of return used for the NPV calculation was 10\%. The project was expected to produce annual after-tax cash flows of 5135,000. Required: 1. Compute the NPV for Campbell Manufocturing, assuming a discount rate of 12%. If required, round all present value calculations to the nearest doliar. Use the minus sign to indicate a negative NPV. Should the company buy the new welding system? vin+ 2. Conceptual Connection; Assuming a required rate of return of 8%, calculate the NpV for fvet Cardenas' investment. Round to the nearest dollar. If required, round all present value calculations to the nearest dollar. Use the minus slign to indicate a negative Npv. 1 Should she invest? verr What if the estimated return was $135,000 per year? Calculate the new Nov for Evee Cardenas' investmest. Would this affect the decion? What does this tell you about your analysis? Round to the nearest dollar. 4 The shop be purchased. This reveals that the decision to accept or reject in this case is affected by diflerences in estimated ena is + 3. What was the required investment for Barker Compuny's preject? Round to the nearest dollar. If required, round all present value calculations to the nearest doliar. Net Present Value (NPV) NPV =P+I The difference between the present value of future cesh fows and the initial investment outlay. Apply the oiscount factor derived from the tables to the cash flows. Use the given interent rate (required rate of recuen, Escount rate, cost of capital) with either Exhibit and the appropriate cash fows. 1. Use the information in (a) to calculate NFV. 2. Use the information in (b) to calculate NPV. Then adyast the amounts and recalculate MPV. 3. Use the information in (c) to calculate the inital investment. I=P. NPV Review the "How to Assess Cash Flows and Calculate Net Present Value" example in the teat. Exhibit 12B.1 Present Value of a Single Amount" Exhibit 12B.2 Present Value of an Annuity