Question

The following are the final values to the data:

Answer 1

Answer:

$3,716.37

Explanation:

Initial investment $70,000 (cost of the equipment)

Depreciation expense per year = (cost- salvage value) / useful life = ($70,000 - $0) / 5 years = $14,000

net cash flows per year (the same for every year):

[(revenues - operating expenses - depreciation expense) x (1 - tax rate)] + depreciation expense = [($30,000 - $11,000 - $14,000) x (1 - 30%)] + $14,000 = $3,500 + $14,000 = $17,500

year                    NCF

0                       -$70,000

1                          $17,500

2                         $17,500

3                         $17,500

4                         $17,500

5                         $17,500

6% discount rate

using a financial calculator, the NPV = -$70,000 + $73,716.37 = $3,716.37

$73,716.37 is the present value of the 5 future cash flows