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?(Net present value? calculation)??Carson Trucking is considering whether to expand its regional service center in? Mohab,...

?(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

?

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Answer #1

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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