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1. A project will produce an operating cash from of $33,000 a year for 10 years....

1. A project will produce an operating cash from of $33,000 a year for 10 years. The initial fixed asset investment in the project will be $195,000. The net after-tax salvage value is estimated at $50,000 and will be received during the last year of the project’s life. What is the net present value (NPV) of the project if the required rate of return is 10 percent?

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Answer #1

Present value of cash flow = [PVA 10%,10* Operating cash flow ]+[PVF 10%,10*Salvage value]

          =[6.14457*33000]+ [.38554*50000]

              = 202770.81+ 19277

             = $ 222047.81

NPV = Present value - initial investment

                   = 222047.81 - 195000

                    = $ 27047.81

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