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USP Company is considering an investment project that will produce an operating cash flow of $94,000...

USP Company is considering an investment project that will produce an operating cash flow of $94,000 a year for three years. The initial cash outlay for equipment will be $201,000. The net aftertax salvage value of $17,000 will be received at the end of the project. The project requires $32,500 of net working capital up front that will be fully recovered when the project ends. What is the net present value of the project if the required rate of return is 14 percent?

$24,957.20

$21,413.60

$18,144.50

$15,334.27

$12,658.73

Solutions

Expert Solution

NPV = $18,144.50
Statement showing Cash flows
Particulars Time PVf 14% Amount PV
Cash Outflows - Initial Investment                                  -                        1.00       (201,000.00)       (201,000.00)
Cash Outflows- Working capital                                  -                        1.00         (32,500.00)         (32,500.00)
PV of Cash outflows = PVCO       (233,500.00)
Cash inflows                             1.00                  0.8772            94,000.00            82,456.14
Cash inflows                             2.00                  0.7695            94,000.00            72,329.95
Cash inflows                             3.00                  0.6750            94,000.00            63,447.32
Cash inflows- Salvage Value                             3.00                  0.6750            17,000.00            11,474.52
Cash inflows- Recovery of WC                             3.00                  0.6750            32,500.00            21,936.57
PV of Cash Inflows =PVCI         251,644.50
NPV= PVCI - PVCO            18,144.50

jeff jeffy answered 1 year ago
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