A project has an initial requirement of $89,218 for equipment. The equipment will be depreciated to...

A project has an initial requirement of $89,218 for equipment. The equipment will be depreciated to a zero book value over the 5-year life of the project. The investment in net working capital will be $21,134. All of the net working capital will be recouped at the end of the 5 years. The equipment will have an estimated salvage value of $13,654. The annual operating cash flow is $39,203. The cost of capital is 12 percent. What is the project’s net present value if the tax rate is 39 percent?

Expert Solution

Statement showing Cash flows
Particulars	Time	PVf 12%	Amount	PV
Cash Outflows	-	1.00	(89,218.00)	(89,218.00)
Cash Outflows	-	1.00	(21,134.00)	(21,134.00)
PV of Cash outflows = PVCO				(110,352.00)
Cash inflows	1.00	0.8929	39,203.00	35,002.68
Cash inflows	2.00	0.7972	39,203.00	31,252.39
Cash inflows	3.00	0.7118	39,203.00	27,903.92
Cash inflows	4.00	0.6355	39,203.00	24,914.22
Cash inflows	5.00	0.5674	39,203.00	22,244.84
Cash inflows = recovery of working capital	5.00	0.5674	21,134.00	11,992.00
Cash inflows = Salvage Value =13654*(1-.39)	5.00	0.5674	8,328.94	4,726.06
PV of Cash Inflows =PVCI				158,036.10
NPV= PVCI - PVCO				47,684.10

jeff jeffy answered 1 year ago

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