Question

ABC Company is analyzing an investment project. The following
information is available concerning this project:

Initial investment .......................  $250,000
Working capital needed now ...............  $ 31,000
Salvage value of equipment in 8 years ....  $ 10,000
Annual net cash inflows ..................  $120,000
Equipment repair in year 5 ...............  $ 93,000
Life of project ..........................  8 years
Cost of capital ..........................     10%
Income tax rate ..........................     30%

Assume the working capital needed now will be released for
investment elsewhere at the end of the project.

Calculate the net present value of the investment project.

To answer this question use the present value table factors
given below. No credit will be awarded for this question
using a means other than the table factors given below to
answer this question.

Factors from the present value of a lump sum table for:

i = 10%
n = 4       n = 5       n = 6       n = 7       n = 8 
0.683       0.620       0.565       0.513       0.467


Factors from the present value of an annuity table for:

i = 10%
n = 4       n = 5       n = 6       n = 7       n = 8
3.170       3.790       4.355       4.868       5.335

Answer 1

Answer- The net present value of the inestment project =$372147.

Explanation-

ABC COMPANY
Net Present Value
Particulars	Cash Flows	Present Value Factor @10%	Present value
	(a)	(b)	(c=a*b)
Net cash flow per year (For 8 years)	120000	5.335	640200
Initial investments (1st Year)	-250000	1	-250000
Working Capital	-31000	1	-31000
Equipment repair (in 5th year)	-10000	0.620	-6200
Salvage value of equipment (8th year)	10000	0.467	4670
ADD:- Working capital	31000	0.467	14477
Net Present Value			372147