Kim Johnson purchased an asset for $80,000. Annual operating cash inflows are expected to be $30,000 each year for four years. At the end of the life of the asset, Kim will not be able to sell the asset because it will have no salvage value.

Required: What is the net present value if the cost of capital is 12 percent? Use the time value of money charts for your calculations. (Ignore income taxes)

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To calculate the net present value (NPV) of an investment, we need to discount the future cash inflows to the present value using the cost of capital. Here's how to do it step by step:

Step 1: Determine the discounted cash inflows for each year.
- The annual operating cash inflow is $30,000.
- The life of the asset is four years.
- Determine the present value factor for each year using a time value of money chart or formula. For a cost of capital of 12 percent, the present value factor for each year is as follows:
- Year 1: 0.8929
- Year 2: 0.7972
- Year 3: 0.7118
- Year 4: 0.6355
- Multiply the annual cash inflow by the present value factor for each year to get the discounted cash inflow:
- Year 1: $30,000 x 0.8929 = $26,787
- Year 2: $30,000 x 0.7972 = $23,916
- Year 3: $30,000 x 0.7118 = $21,354
- Year 4: $30,000 x 0.6355 = $19,066

Step 2: Calculate the net present value (NPV).
- The initial investment or cost is $80,000.
- Subtract the initial investment from the sum of the discounted cash inflows:
- NPV = ($26,787 + $23,916 + $21,354 + $19,066) - $80,000

Step 3: Perform the calculation.
- Add up the discounted cash inflows: $26,787 + $23,916 + $21,354 + $19,066 = $91,123
- Calculate the NPV: NPV = $91,123 - $80,000 = $11,123

Based on the given information and using a cost of capital of 12 percent, the net present value (NPV) of the investment is $11,123.