Question

A project has an initial requirement of $177685 for new equipment and $9227 for net working capital. The installation costs are expected to be $12515. The fixed assets will be depreciated to a zero book value over the 4-year life of the project and have an estimated salvage value of $135789. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $98459 and the cost of capital is 7% What is the project's NPV if the tax rate is 27%?

Answer 1

Hello

Time Period	0	1	2	3	4
Equipment	($177,685.00)				$135,789.00
Working Capital	($9,227.00)				$9,227.00
Installation Costs	($12,515.00)
Annual Cash Flows		$98,459.00	$98,459.00	$98,459.00	$98,459.00
Tax Savings on Depreciation		$3,672.74	$3,672.74	$3,672.74	$3,672.74
Total Cash Flows	($199,427.00)	$102,131.74	$102,131.74	$102,131.74	$247,147.74
Present Value Factor	1	0.93457944	0.87343873	0.81629788	0.76289521
Present Value	($199,427.00)	$95,450.23	$89,205.82	$83,369.92	$188,547.83
Hence Net Present Value =					$257,146.80

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