Question

Best Why Inc. is considering a new project that consists of buying an automatic dispenser that fe of 8 years. The project's initial cost is $59747.66. The project is expected to generate benefits of $24,000 per year for the first 4 years while it will only generate 12,000 per year for the next 4 years. In addition, the O&M costs of this project will be $8,000 per year for the first 3 years, $7,000 per year for the next 3 years and $10,000 per year for the last 2 years. At the end of the 8 years, Best Why will sell the dispenser for $700. The interest rate for this project is 7.5%. Compute the net present value of this project.

Answer 1

Cash Flow end first Year=24000-8000=16000, second =16000, third=16000,fourth=24000-7000=17000, fifth=12000-7000=5000, sixth=12000-7000=5000, seventh=12000-10000=2000, eighth=12000-10000+700(from sell of dispenser)=2700

NPV=-59747.66+16000/1.075+16000/1.075^2+16000/1.075^3+17000/1.075^4+5000/1.075^5+5000/1.075^6+2000/1.075^7+2700/1.075^8=4032.367