Maersk Metal Stamping is analyzing a special investment project. The project wil

Question

Maersk Metal Stamping is analyzing a special investment project. The project will require the purchase of two machines for $30,000 and $4,000 (both machines are required). The total residual value at the end of the project is $1,000. The project will generate cash inflows of $15,000 per year over its 10-year life. If Maersk requires a 6% return, what is the net present value (NPV) of this project? (The present value of annuity for this scenario is 7.36. The present value for this scenario is 0.558.) A. $34,700 OB. $76.400 O C. $35,563 OD, $76.958

Explanation / Answer

Investment = 30000 +4000 = 34000

Cash flow over a 10 year period = 15000

Cash flow at 10th year (one time) = 1000

Present value of cash flows = 15000 * 7.36 + 1000 * 0.558 = 110958

Net present value = 110958 - 34000 = 76958

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