Question
In: Finance
The Fitness Center is considering including a treadmill in this year's capital budget. The cash outlay...
The Fitness Center is considering including a treadmill in this year's capital budget. The cash outlay for the treadmill is $1,530.
The firm's cost of capital is 7.3%.
After-tax cash flows, including depreciation, are as shown in the table below. Calculate the net present value (NPV) for this project.
|
End of Year |
Cash Flow |
|
|
1 |
$595 |
|
|
2 |
595 |
|
|
3 |
595 |
|
|
4 |
595 |
|
|
5 |
595 |
Solutions
Expert Solution
Ans NPV = $ 890.15
| Year | Project Cash Flows (i) | DF@ 7.3% | DF@ 7.3% (ii) | PV of Project ( (i) * (ii) ) |
| 0 | -1530 | 1 | 1 | (1,530.00) |
| 1 | 595 | 1/((1+7.3%)^1) | 0.931966 | 554.52 |
| 2 | 595 | 1/((1+7.3%)^2) | 0.868561 | 516.79 |
| 3 | 595 | 1/((1+7.3%)^3) | 0.809470 | 481.63 |
| 4 | 595 | 1/((1+7.3%)^4) | 0.754399 | 448.87 |
| 5 | 595 | 1/((1+7.3%)^5) | 0.703075 | 418.33 |
| NPV | 890.15 |
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