Question

Carson Trucking is considering whether to expand its regional service center in? Mohab, UT. The expansion requires the expenditure of ?$11, 000, 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 9 years. In year 9 the firm will also get back a cash flow equal to the salvage value of the? equipment, which is valued at ?$1.2 million. ? Thus, in year 9 the investment cash inflow totals ?$4 200 000 . Calculate the? project's NPV using a discount rate of 10 percent.

Answer 1

Answer:

NPV = $ 17,200,000

Step-by-step explanation:

Total expenditures = $ 11,000,000

Net cash inflow = $ 3,000,000 per year

total duration of cash inflow = 9 years

Thus, total cash inflow = $ 3,000,000 per year × 9 years = $ 27,000,000

salvage value = $ 1.2 million = $ 1,200,000

NPV = Salvage value + total cash flow - Expenditures

on substituting the values, we get

NPV = $ 1,200,000 + $ 27,000,000 - $ 11,000,000

or

NPV = $ 17,200,000