LM Company is considering investing in a new project that will generate cash inflows of $45,000...

LM Company is considering investing in a new project that will generate cash
inflows of $45,000 every year for the ten-year life of the project. Investing
in this new project will require the purchase of a new machine, which will cost
$200,000. The machine will have a salvage value of $15,000 at the end of ten
years, but will require a repair costing $6,000 at the end of year four and a 
repair costing $10,000 at the end of year seven. In addition, this project will
require an immediate investment of $40,000 in working capital which would be
released for investment elsewhere at the end of the ten years. LM Company has
a cost of capital of 8% and an income tax rate of 40%.

Calculate the net present value (NPV) of the new project.

Solutions

Expert Solution

Calculate the NPV using excel as follows:

The values will appear as follows:

jeff jeffy answered 1 year ago

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