Question

Bruno's Lunch Counter is expanding and expects operating cash flows of $31,700 a year for 6 years as a result. This expansion requires $110,300 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires $7,800 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 11 percent

Answer 1

Answer:

the net present value of this expansion project is  - $9,190.14.

Explanation:

Net Present Value is calculated by taking the Present Day (discounted) Value of all future net cash flows based on the cost of capital and subtracting the initial cost of investment.

Summary for Bruno's Lunch Counter cash flows for the Project are :

Year 0 = - $110,300

Year 1  = $31,700 - $7,800 = $23,900

Year 2 = $23,900

Year 3 = $23,900

Year 4 = $23,900

Year 5 = $23,900

Year 6 = $23,900

Use the financial calculator to input the values as follows

CF0 = - $110,300

CF1  =  $23,900

CF2 = $23,900

CF3 = $23,900

CF4 = $23,900

CF5 = $23,900

CF6 = $23,900

P/yr = 1

r = 11 %

Net Present Value will be - $9,190.1453