?(Net present value? calculation)??Carson Trucking is considering whether to expand its regional service center in? Mohab, UT. The expansion requires the expenditure of ?$10,500,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to 3,000,000 per year for each of the next 7 years. In year 7 the firm will also get back a cash flow equal to the salvage value of the? equipment, which is valued at ?$1.1 million. ? Thus, in year 7 the investment cash inflow totals ?$4,100,000. Calculate the? project's NPV using a discount rate of 7 percent.
If the discount rate is 7 ?percent, then the? project's NPV is
?
Net present value = present value of cash inflows - present value of cash outflows
present value of cash inflows = 3,000,000 / ( 1 + 0.07)1+ 3,000,000 / ( 1 + 0.07)2+ 3,000,000 / ( 1 + 0.07)3+ 3,000,000 / ( 1 + 0.07)4+ 3,000,000 / ( 1 + 0.07)5+ 3,000,000 / ( 1 + 0.07)6+ 4,100,000 / ( 1 + 0.07)1
present value of cash inflows = 2,803,738.318 + 2,620,316.185 + 2,448,893.631 + 2,288,685.636 + 2,138,958.538 + 1,999,026.671 + 2,553,273.942
present value of cash inflows = 16,852,892.92
NPV = 16,852,892.92 - 10,500,000
NPV = $6,352,892.921
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