To motivate her staff, Michelle runs a few different PV scenarios to show how their additional effort could really pay off. Under average conditions, after-tax annual net operating cash flows are $73,000. Under a bit more optimistic (but still possible) conditions, after-tax annual net operating cash flows could be $126,000. She tells her staff that if these higher cash flow amounts could be earned for 4 consecutive years, a portion of that value could be used for employee perks (i.e., celebratory trips paid for by the company). She thinks she has their attention.
Using two different possible discount rates (6% and 12%), calculate the range of NPVs for the average and optimistic options. (Round present value factor calculations to 5 decimal places, e.g., 1.25124 and final answers to 2 decimal places e.g., 5,125.36. Enter negative amounts using either a negative sign preceding the number e.g., -45 or parentheses e.g., (45))
NPV at 6%
NPV at 12%
Average Cash Flows
Optimistic Cash Flows
Is the difference in these NPV amounts significant enough to suggest some nice perks?