How do i figure out the net present value? Holland, Inc., has just completed dev

Question

How do i figure out the net present value?

Holland, Inc., has just completed development of a new cell phone. The new product is expected to produce annual revenues of $1,350,000. Producing the cell phone requires an investment in new equipment, costing $1,440,000. The cell phone has a projected life cycle of five years. After five years, the equipment can be sold for $180,000. Working capital is also expected to increase by $180,000, which Holland will recover by the end of the new product's life cycle. Annual cash operating expenses are estimated at $810,000. The required rate of return is 8 percent.

How do i figure out the net present value?

2. Calculate the NPV using only discount factors from Exhibit 14B-1. Round present value calculations and your final answer to the nearest whole dollar.

$____

3. Calculate the NPV using discount factors from both Exhibit 14B-1 and Exhibit 14B-2. Round present value calculations and your final answer to the nearest whole dollar.

$____

Explanation / Answer

The NPV is 291,054

NPV= present value of cash flows - initial investment

NPV= PV of cash flows (1-4) + PV cash flow 5 - initial investment

NPV= PVA(n=4,i=8%) + PV$1 (n=5, i=8%) - initial investment

NPV= 540,000 (cash flow) x 3.31213 (table factor) + 180,000 (cash flow) x 0.68058 (table factor) -

1,620,000 (initial investment or cash flow 0)

NPV= 1,788,550 + 122,504 - 1,620,000

NPV= 291,054

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