Answer:
NPV = ($1,848.57)
Explanation:
<em>The NPV is the difference between the PV of cash inflows and the PV of cash outflows. A positive NPV implies a good investment decision and a negative figure implies the opposite. </em>
<em>NPV of an investment: </em>
<em>NPV = PV of Cash inflows - PV of cash outflow</em><em> </em>
Initial cost = 40,000
Salvage value = 12,000
Savings in operating cost = 3,000
PV of annual savings : 3000× (1- 1.06^-20)/0.06 =34,409.76
PV of salvage value = 12,000 × 1.06^(-20)=3,741.65
Total PV of cash inflow 34,409.76 + 3,741.65= 38,151.42
NPV = 38,151.42038 - 40,000 = $(1,848.57)
The project should not be implemented because it would delete the shareholders wealth by $1,848.57
NPV = ($1,848.57)