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

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=bc**
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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