Question

The project involves an initial investment of $100,000 in equipment that falls in the 3-year MACRS class and has an estimated salvage value of $15,000. In addition, the company expects an initial increase in net operating working capital of $5,000 which will be recovered in year 4. The cost of capital for the project is 12 percent. What is the project’s net present value

Answer 1

NPV -87,259.64

Step-by-step explanation:

P0 -100,000

Salvage Value 15,000

operating working capital realese 5,000

We will calculate the present value of the salvage value and the working capital realese

`(Principal)/((1 + rate)^(time) ) = PV`

`(5,000)/((1 + 0.12)^(4) ) = PV`

3,177.59

`(15,000)/((1 + 0.12)^(4) ) = PV`

9,532.77

NPV = investment - cash flow discounted

NPV = -100,000 + 9,532.77 + 3,177.59 = -87,259.64