Ernest Jones is reviewing his company’s investments in a cement plant. The company paid $15,000,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company’s discounts rate for present value computations is 8 percent. Expected and actual cash flow as follows:
| Year 1 | $ 3,300,000 | $ 2,700,000 | ||
| Year 2 | $ 4,920,000 | $ 3,060,000 | ||
| Year 3 | $ 4,560,000 | $ 4,920,000 | ||
| Year 4 | $ 4,980,000 | $ 3,900,000 | ||
| Year 5 | $ 4,200,000 | $ 3,600,000 | ||
Required:
A.Compute the net present value of the expected cash flows as of the beginning of theinvestment
B.Compute the net present value of the actual cash flows as of the beginning of theinvestment
C.What do you conclude from this postaudit?
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