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You are considering a 3-year project with an initial cost of $620,000. The project will not...

You are considering a 3-year project with an initial cost of $620,000. The project will not directly produce any sales but will reduce operating costs by $265,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated $63,000 (before tax). The tax rate is 34%. The project will require $23,000 in extra inventory for spare parts and accessories at its beginning, which will be recuperated at the end of the project. What is the NPV of the project if the required rate of return is 9 percent?

Select one:

a. $-8064

b. $18259

c. $49422

d. $27457

e. $-4651

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Answer #1

NPV=-23000+23000/1.09^3-620000+63000*(1-34%)/1.09^3+((265000-620000/3)*(1-34%)+620000/3)/0.09*(1-1/1.09^3)=27457

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