Question

Coyne Corporation is evaluating a capital investment opportunity. This project would require an initial investment of​ $36,000 to purchase equipment. The equipment will have a residual value at the end of its life of​ $5,000. The useful life of the equipment is 4 years. The new project is expected to generate additional net cash inflows of​ $19,000 per year for each of the four years.​ Coyne's required rate of return is​ 10%. The net present value of this project is closest​ to:+

Answer 1

$27,643

Explanation:

The net present value is the present value of after tax cash flows from an investment less the amount invested.

The formula for the NPV can be found in the attached image.

The NPV can be found using a financial calculator:

The cash flow for year zero = $-36,000

Cash flow from year one to three = $19,000

Cash flow for year four =$19,000 + $5,000 = $24,000

I = 10%

NPV = $27,643

I hope my answer helps you