# Compute the Net present value | Accounting homework help

A manager is considering the following investment:

 Initial capital investment \$180,000 Estimated useful life 3 years Estimated disposal value in 3 years 0 Estimated annual savings in cash operating costs \$80,000 Minimum desired rate of return 10% Present value of an ordinary annuity, 3 periods at 10% 2.4869 Present value of one, 3 periods at 10% 0.7513

Assume straight-line depreciation is used. Ignore income taxes. The net present value of the investment is:

A) \$18,952

B) \$60,000

C) \$198,952

D) \$(123,652)

Family Fun Park is evaluating the purchase of a new game to be located on its Midway. Family Fun has narrowed its choices down to two; the Wacky Water Race game and the Whack-A-Mole game. Financial data about the two choices follow:

Wacky Water Race Whack-A-Mole
Investment \$32,000 \$22,000
Useful Life 5 5
Estimated annual net cash inflows for 5 years \$8,000 \$6,000
Residual Value \$2,000 \$1,000
Depreciation method Straight-line Straight-line
Required rate of return 8% 10%

What is the total present value of future cash inflows and residual value from the Whack-A-Mole game?

A. \$22,746

B. \$23,367

C. \$24,579

D. \$45,367

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