Question
In: Finance
A project will produce an operating cash flow of $91,500 a year for three years. The...
A project will produce an operating cash flow of $91,500 a year for three years. The initial cash outlay for
equipment will be $188,000. The net aftertax salvage value of $17,000 will be received at the end of the
project. The project requires $52,000 of net working capital up front that will be fully recovered. What is the
net present value of the project if the required rate of return is 14 percent?
A. $22,318.76 B. $19,002.37 C. $15,450.93 D. $24,670.39 E. $17,488.70
Solutions
Expert Solution
NPV Calculation:
| Year | Investment in Equipment | Cashflow from operations | Working capital | Net Cashflows | Discounting factor @ 14% p.a. | Present Value |
| 0 | -1,88,000 | -52,000 | -2,40,000 | 1.0000 | -2,40,000.00 | |
| 1 | 91,500 | 91,500 | 0.8772 | 80,263.16 | ||
| 2 | 91,500 | 91,500 | 0.7695 | 70,406.28 | ||
| 3 | 17,000 | 91,500 | 52,000 | 1,60,500 | 0.6750 | 1,08,332.93 |
| Net present Value (NPV) | 19,002.37 | |||||
Option B is correct. B 19,002.37
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jeff jeffy answered 1 year agoRelated Solutions
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