Question
In: Finance
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 |
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