Question

Red Royal Recycling is considering a project that would last for 2 years. The project would involve an initial investment of 104,000 dollars for new equipment that would be sold for an expected price of 104,000 dollars at the end of the project in 2 years. The equipment would be depreciated to 27,000 dollars over 7 years using straight-line depreciation. In years 1 and 2, relevant annual revenue for the project is expected to be 91,000 dollars per year and relevant annual costs for the project are expected to be 40,000 dollars per year. The tax rate is 50 percent and the cost of capital for the project is 9.96 percent. What is the net present value of the project?

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -