Question

A project will produce an operating cash flow of $56,200 a year for 5 years. The initial fixed asset investment in the project will be $238,900. The net aftertax salvage value is estimated at $67,000 and will be received during the last year of the project's life. What is the net present value of the project if the required rate of return is 15.2 percent

Answer 1

Answer :

Net present value = -$18,375

Explanation :

As per the data given in the question,

Initial investment = $239,800

The project will generate operating cash flow pf $56,200 for 5 years

So present value of operating cash flow :

PMT = $56,200

N = 5 years

Rate = 15.2%

FV = $0

Now applying the formula

= -PV(RATE,NPER,PMT,FV,0)

The present value comes $187,502

Now

FV = $67,000

n = 5 years

Rate = 15.2%

PMT = $0

Now applying the formula

= -PV(RATE,NPER,PMT,FV,0)

The present value comes $33,023

Now the Net present value is

= ($33,023 + $187,502) - $238,900

= -$18,375