A project has an initial requirement of $191013 for new equipment and $13286 for net working...

A project has an initial requirement of $191013 for new equipment and $13286 for net working capital. The installation costs to get the new equipment in working condition are 3728. The fixed assets will be depreciated to a zero book value over the 5-year life of the project and have an estimated salvage value of $72103. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $94903 and the cost of capital is 7% What is the project's NPV if the tax rate is 25%? Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

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Expert Solution

Year	Cash outflows	Cash inflows	Depreciation = D = 194741/5 = 125,914.29	Net Working capital = NWC	Net Cash flows = Cash outflow + NWC	Discount factor = Df = 1/(1+Rate)^Year	Present Values
0	-194741.00	0.00	0.00	-13,286.00	-208,027.00	1.000000	-208,027.00
	Co	Ci	D	NWC	Net Cash flow = (Co+Ci-D)x(1-25%)+D+NWC	Df = 1/(1+7%)^Year	Df x Net Cash flows
1		94,903.00	38,948.20		80,914.30	0.934579	75,620.8056
2		94,903.00	38,948.20		80,914.30	0.873439	70,673.7053
3		94,903.00	38,948.20		80,914.30	0.816298	66,050.1813
4		94,903.00	38,948.20		80,914.30	0.762895	61,729.1149
5		167,006.00	38,948.20	13,286.00	148,277.55	0.712986	105,719.8173
						Total = NPV =	171,766.62

NPV = $171,766.62

Note:

Installation cost is included in Cash outflows for machine purchase and same is used for depreciation purposes.

Year 5: Cash inflows = Cash flow from operations + Sale proceeds of machine.

jeff jeffy answered 1 year ago

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