Question

A project needs an initial outlay of $3000 for equipment and will net a cash flow...

A project needs an initial outlay of $3000 for equipment and will net a cash flow of $450 for the next 10 years. At the end of the 10th year, there is a Salvage Value of $1000 for the equipment. What is the NPV of the project if the cost of capital is 12% p.a. effective (to the nearest dollar)?

Select one:

a. -$953

b. $2500

c. -$135

d. $1585

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Homework Answers

Answer #1

Option C (-$135) is the answer.

Note:

1. The present value factors in the third column are calculated using the formula 1/(1+0.12)n where n is the number of year.

2. The present values have been obtained by multiplying the cash flows with the present value factors.

3. The NPV has been obtained by adding all the present values in the last column.

4. For year 10, salvage value of $1000 is also added to the $450

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