Question

Bruno's Lunch Counter is expanding and expects operating cash flows of $26,900 a year for 6 years as a result. This expansion requires $92,700 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires $6,600 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 13 percent?

Answer 1

Net present value of this expansion project is 8234.

Step-by-step explanation:

To get the net present value, we make a cash-flow in excel. See document attached.

At moment 0 the investment is =$(92.700), also we consider the working capital =(6.600)

Moment 1 to 6 = $26.900

We calculate the Net cash flow (that is the difference between benefits and cost).

To get net present value, we use VNA formula. ( =VNA(required rate of return; Net cash flow from moment 0 to moment 6) +Net cash flow at moment 0)

Net present value is 8234