Question

The Lunch Counter is expanding and expects operating cash flows of $32,500 a year for three years as a result. This expansion requires $28,000 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires $2,800 of net working capital throughout the life of the project. What is the net present value of this expansion project at a required rate of return of 14%?

Answer 1

Answer:

NPV = $40,952.46

Explanation:

Net present value is the present value of after tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

Cash flow in year 0 = $-28,000

Cash flow in year 1 to 3 = $32,500 - $2,800 = $29,700

I =14%

NPV = $40,952.46

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you