Question

The project involves an initial investment of $100,000 in equipment that falls in the 3-year MACRS class and has an estimated salvage value of $15,000. In addition, the company expects an initial increase in net operating working capital of $5,000 which will be recovered in year 4. The cost of capital for the project is 12 percent. What is the project’s net present value

Answer 1

Answer:

NPV -87,259.64

Explanation:

P0   -100,000

Salvage Value 15,000

operating working capital realese 5,000

We will calculate the present value of the salvage value and the working capital realese

$\frac{Principal}{(1 + rate)^{time} } = PV$

$\frac{5,000}{(1 + 0.12)^{4} } = PV$

3,177.59

$\frac{15,000}{(1 + 0.12)^{4} } = PV$

9,532.77

NPV = investment - cash flow discounted

NPV = -100,000 + 9,532.77 + 3,177.59 = -87,259.64