Question

A project will produce an operating cash flow of $295,000 a year for four years. The initial cash outlay for equipment will be $721,000. The net aftertax salvage value of $72,000 will be received at the end of the project. The project requires $79,000 of net working capital that will be fully recovered when the project ends. What is the net present value of the project if the required rate of return is 15 percent? $114,372 $121,017 $128,553 $136,764 $144,915

Answer 1

NPV = Present Value of Cash Inflows – Present Value of Cash Outflows

= 295,000*PVAF(15%, 4 years) -721,000 + 72,000*PVF(15%,4 years) - 79,000 + 79,000*PVF(15%, 4 years)

= 295,000*2.855 -721,000+72,000*0.572 -79,000 + 79,000*0.572

= $128,597

Or $128,553 (approx.)