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A project will produce an operating cash flow of $32,500 a year for 7 years. The...

A project will produce an operating cash flow of $32,500 a year for 7 years. The initial fixed asset investment in the project will be $204,900. The net aftertax salvage value is estimated at $62,000 and will be received during the last year of the project's life. What is the net present value of the project if the required rate of return is 8 percent?

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Answer #1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=32500/1.08+32500/1.08^2+............+32500/1.08^7+62000/1.08^7

=$205,383.43

NPV=Present value of inflows-Present value of outflows

=$205,383.43-$204900

=$483.43(Approx).

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