What would the annual net cash inflows from this project have to be in order to justify investing in remodeling?

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(Ignore income taxes in this problem.) The Finney Company is reviewing the possibility of remodeling one of its showrooms and buying some new equipment to improve sales operations. The remodeling would cost $172,000 now and the useful life of the project is 8 years. Additional working capital needed immediately for this project would be $43,000; the working capital would be released for use elsewhere at the end of the 8-year period. The equipment and other materials used in the project would have a salvage value of $16,500 in 8 years. Finney’s discount rate is 15%. What would the annual net cash inflows from this project have to be in order to justify investing in remodeling? (Round your ‘PV factors’ to three decimal places. Round your other intermediate calculations and final answer to the nearest whole dollar.) (Use Exhibit11b-1, Exhibit11b-2) rev: 12_14_2012, 12_21_2012, 01_14_2015_QC_CS-3712

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Answer : annual net cash inflows from this project have to be in order to justify investing in remodeling = $ 43578.42

Working Notes for the above answer is as under

remodeling would cos 172000
useful life of the project 8 Year
Additional working capital needed 43000
salvage value 16500
Finney’s discount rate is 15%
remodeling would cos 172000
Add:
Additional working capital needed 43000
Total Requirement 215000

Require Cash Flow will be calculated as follow

Year Pv factor Salvage
Value
Realease of Working Capital Cash Flow
0
1 0.8696 ?
2 0.7561 ?
3 0.6575 ?
4 0.5718 ?
5 0.4972 ?
6 0.4323 ?
7 0.3759 ?
8 0.3269 16500 43000 ?
4.4873

Initial Out flow= Pv of Annual Cash Flow+Pv Of salvage+PV of woking capital realeses

215000 = Annual Cash flow(15%PVIFA,8 years) +16500*0.3269 +43000*0.3269

215000=Annual Cash flow(15%PVIFA,8 years)+5393.85+14056.7

215000=Annual Cash flow(4.4873)+19450.55

215000-19450.55 =Annual Cash flow(4.4873)

Annual Cash flow(4.4873) = 195549.45

Annual Cash Flow =195549.48/4.4873

Annual Cash Flow =$ 43578.42

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