Question

A project will produce an operating cash flow of $358,000 a year for four years. The initial cash outlay for equipment will be $785,000. The net aftertax salvage value of $42,000 will be received at the end of the project. The project requires $78,000 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 14 percent?

		$237,613
		$251,159
		$274,300
		$290,184
		$309,756

Assume a machine costs $540,000 and lasts eight years before it is replaced. The operating cost is $37,500 a year. Ignore taxes. What is the equivalent annual cost if the required rate of return is 14 percent? (Hint: the EAC should account for both initial investment and annual operating costs)

		$125,516.07
		$138,247.15
		$153,907.81
		$166,470.92
		$178,503.40

Answer 1

Solution :

1. The Net Present value of the project = $ 251,159

The solution is Option 2 = $ 251,159

2.The Equivalent Annual Cost of the machine = $ 153,907.81

Thus the solution is Option 3 = $ 153,907.81

Please find the attached screenshots of the excel sheet containing the detailed calculation for the solution.