Question

Mattice Corporation is considering investing $610,000 in a project. The life of the project would be 6 years. The project would require additional working capital of $21,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $152,000. The salvage value of the assets used in the project would be $31,000. The company uses a discount rate of 16%. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using the tables provided. Required: Compute the net present value of the project

Answer 1

Solution:

Computation of NPV - Mattice Corporation
Particulars	Period	Amount	PV Factor (16%)	Present Value
Cash outflows:
Initial investmetn	0	$610,000	1	$610,000
Working capital	0	$21,000	1	$21,000
Present value of cash outflows (A)				$631,000
Cash Inflows:
Annual cash inflows	1-6	$152,000	3.685	$560,120
Salvage value	6	$31,000	0.410	$12,710
Release of working capital	6	$21,000	0.410	$8,610
Present value of cash inflow (B)				$581,440
NPV (B-A)				-$49,560