Forise Water Company drills small commercial water wells. The
company is in the process of analyzing the purchase of a new drill.
Information on the proposal is provided below.
Initial investment:
Asset $600,000
Working capital $ 120,000
Operations (per year for four years):
Cash receipts $450,000
Cash expenditures $ 190,000
Disinvestment:
Salvage value of drill (existing) $ 50,000
Discount rate 18%
What is the net present value of the investment? Assume there
is no recovery of working capital.