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Dorel Industries is considering an investment project that will produce an operating cash flow of $407,000...

Dorel Industries is considering an investment project that will produce an operating cash flow of $407,000 a year for five years. The initial cash outlay for equipment will be $1,318,000. An aftertax salvage value of $105,440 for the equipment will be received at the end of the project. The project requires $197,000 of net working capital that will be fully recovered. What is the net present value of the project if the required rate of return is 14 percent?

$98,043.66

$20,195.73

$39,005.37

$56,203.51

$74,418.26

Solutions

Expert Solution

Initial investment = $1318000+197000 =$1515000

Year 5 cash flow = 407000+105440+197000 =709440

Year Cash Flow PV Factor PV Of Cash Flow
a b c=1/1.14^a d=b*c
0 $    -1,515,000 1.00000 $        -1,515,000.00
1 $          407,000 0.87719 $              357,017.54
2 $          407,000 0.76947 $              313,173.28
3 $          407,000 0.67497 $              274,713.41
4 $          407,000 0.59208 $              240,976.67
5 $          709,440 0.51937 $              368,460.91
Net present value $                39005.37

jeff jeffy answered 2 years ago
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