# Quillen Company is performing a post-audit of a project completed one year ago. The initial...

## Question:

Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $250,000, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $46,000 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $260,000, will have a useful life of 11 years, and will produce net annual cash flows of $39,000 per year. The factor for the present value of an annuity where n = 11, and i = 10% is 6.49506.

Evaluate the success of the project. Assume a discount rate of 10%.

## Evaluate Success of a Project Using Net Present Value Analysis

For capital projects, often times the projects are evaluated, preliminarily, using estimates for the project cost, the useful life, and salvage value, and the net annual cash inflows expected from the project. At this time, one of the analyses which are performed include calculating the net present value of the project. It is a good idea for management to re-evaluate the net present value of the project once the project has started, and even after one year, and recalculate the net present value using any assumptions which have changed since the original estimates.

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View this answerEvaluate the success of the project. Assume a discount rate of 10%.

We can use net present value analysis to evaluate the success of this project,...

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Chapter 5 / Lesson 20Learn about what net present value is, how it is calculated both for a lump sum and for a stream of income over multiple years. View some examples on NPV.

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