Burry Inc. has provided the following data to be used in evaluating a proposed i

Question

Burry Inc. has provided the following data to be used in evaluating a proposed investment project:

   

   

Burry Inc. has provided the following data to be used in evaluating a proposed investment project:

Burry Inc. has provided the following data to be used in evaluating a proposed investment project: For tax purposes, the entire initial investment without any reduction for salvage value will be depreciated over 4 years. The company uses a discount rate of 13%. he net present value of the project is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answer to the nearest dollar amount.)

Explanation / Answer

Annual cash flow for 1st 4 year = (560000-365000)*0.70 + 160000*0.30 = 184500

Annual cash flow after 1st 4 year = (560000-365000)*0.70 = 136500

Post tax salvage value = 100000*0.70 = 70000

The net present value of the project is closest to

NPV = 184500*PVIFA(13%,4) + 136500 * PVIFA(13%,4) * PVIF(13%,4) + 70000*PVIF(13%,8) - 640000

NPV = 184500 * 2.974 +136500*2.974*0.613 + 70000*0.376 - 640000 = $ 183871

Answer:

The net present value of the project is closest to $ 184136

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