Prolem Caleulane the net present value of a project with a nct investment of $20

Question

Prolem Caleulane the net present value of a project with a nct investment of $20,000 for equigment and an additional net working capital investment of $5,000 a time 0. The peoject is expected to generune net cash flows of 57,000 per year over a 10-year estimated economic life. In addition, the net working capital will be recomered at the end of the project. The required retum on the project is 11 peroent and the coempany has a marginal tax rate of 40 percent. What is the meaning of the computed net present value figure? Problem 2 Cakulate the internal rate of retum sad protinability indkes for a projecs hat is expected to generate eight years of annual net cash fhows of $75,000. The project has a net investment of $360,000 and the required return on the projecs is 12 percent

Explanation / Answer

Ans 1 Net cash inflow $7,000 PVIFA (11%,10) 5.8892 Present value of net cash inflow A $41,224 Release of working capital $5,000 PVIF (11%,10) 0.3522 Present value of net cash inflow B $1,761 Total PV of cash inflow A+B $42,985 Less: initial investment -20000 Less working capital ($5,000) NPV $17,985 Taken discount factor upto 4 decimal

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