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Fed
1 month ago
9

A project will produce an operating cash flow of $56,200 a year for 5 years. The initial fixed asset investment in the project w

ill 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
Business
1 answer:
Scilla [3.8K]1 month ago
5 0

Answer:

Net present value = -$18,375

Explanation:

According to the information provided,

Initial investment = $239,800

The project produces an operational cash flow of $56,200 annually for 5 years.

Thus, the present value of cash flows is:

PMT = $56,200

N = 5 years

Rate = 15.2%

Future value (FV) = $0

We apply the following formula:

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

The resulting present value is $187,502.

Now, considering:

FV = $67,000

n = 5 years

Rate = 15.2%

PMT = $0

We again use the formula:

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

The present value is $33,023.

Consequently, the net present value is calculated as:

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

= -$18,375

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