Question

A project will produce an operating cash flow of $14,600 a year for 7 years. the initial fixed asset investment in the project will be $48,900. the net aftertax salvage value is estimated at $12,000 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 12 percent?

Answer 1

Answer: The net present value is the sum of the three present values. NPV = PV of initial investment + PV of 7 year annuity + PV of lump sum salvage NPV = -48900 + 14600 x (1 - 1 / (1 + 12%)^7) / 12% + 12000/(1+12%)^7 = 23,159.04