Final answer:
To determine the net present value of the project, we calculate the present value of the operating cash flows for three years and the salvage value in the final year, then subtract the initial investment. The calculated NPV is $9,698.29, which does not match any of the options provided.
Step-by-step explanation:
To calculate the net present value (NPV) of a project, we need to compute the present value of all the cash flows associated with the project and then subtract the initial investment. The cash flows here include the operating cash flow that occurs for three years and the net after-tax salvage value received in the last year. Let's calculate the present value (PV) of each, and then we can find the NPV by accounting for the initial cash investment.
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- Year 1 Cash Flow: PV = $7,300 / (1 + 0.11)¹ = $6,576.58
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- Year 2 Cash Flow: PV = $7,300 / (1 + 0.11)² = $5,926.65
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- Year 3 Cash Flow (including salvage value): PV = ($7,300 + $3,500) / (1 + 0.11)³ = $8,795.06
Adding up these values gives us the total present value of the cash flows
Total PV = $6,576.58 + $5,926.65 + $8,795.06 = $21,298.29
Now we subtract the initial investment from the total PV to find the NPV:
NPV = Total PV - Initial Investment = $21,298.29 - $11,600 = $9,698.29
This appears to be a straightforward calculation, but none of the options provided match the calculated NPV exactly. Therefore, it is important to double-check all calculations and consider whether there may have been a typo in the question or the options provided