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A company is considering a 6-year project that requires an initial outlay of $24,000. The project...

A company is considering a 6-year project that requires an initial outlay of $24,000. The project engineer has estimated that the operating cash flows will be $4,000 in year 1, $6,000 in year 2, $7,000 in year 3, $7,000 in year 4, $7,000 in year 5, and $9,000 in year 6. At the end of the project, the equipment will be fully depreciated, classified as 5-year property under MACRS. The project engineer believes the equipment can be sold for $5,000 at the end of the project. If the tax rate is 40% and the required rate of return is 10%, what is the net present value (NPV) of this project? (Answer to the nearest dollar.) Please show work so I will know how to do the problem!

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Answer #1
Calculation of net present value of project
Year 0 1 2 3 4 5 6
Initial Investment -$24,000.00
Operating Cash flow $4,000.00 $6,000.00 $7,000.00 $7,000.00 $7,000.00 $9,000.00
After tax sale value of equipment [Sale value x (1-tax rate)] $3,000.00
Net Cash flow -$24,000.00 $4,000.00 $6,000.00 $7,000.00 $7,000.00 $7,000.00 $12,000.00
x Discount factor @ 10% 1 0.90909091 0.82644628 0.7513148 0.68301346 0.62092132 0.56447393
Present Value -$24,000.00 $3,636.36 $4,958.68 $5,259.20 $4,781.09 $4,346.45 $6,773.69
Net Present Value $5,755.48
The net present value (NPV) of this project = $5,755.48
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