Question

A project will produce an operating cash flow of $475,000 a year for four years. The...

A project will produce an operating cash flow of $475,000 a year for four years. The initial cash outlay for equipment will be $1,080,000. The net aftertax salvage value of $81,000 will be received at the end of the project. The project requires $142,000 of net working capital up front that will be fully recovered. What is the net present value of the project if the required rate of return is 14 percent?

$294,047.25

$308,116.57

$281,547.93

$317,286.90

$272,430.06
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Answer #1

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

=475000/1.14+475000/1.14^2+475000/1.14^3+475000/1.14^4+81000/1.14^4+142000/1.14^4

=475000[1/1.14+1/1.14^2+1/1.14^3+1/1.14^4]+81000/1.14^4+142000/1.14^4

=(475000*2.913712304)+(81000*0.592080277)+(142000*0.592080277)

=$1,516,047.25

Present value of outflows=1,080,000+142000

=$1,222,000

NPV=Present value of inflows-Present value of outflows

=$1,516,047.25-$1,222,000

=$294047.25(Approx).

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