If considering adding two pieces of equipment, a truck and an overhead pulley sy

Question

If considering adding two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $17,400, and that for the pulley system is $20,200. The firm's cost of capital is 13.50%. After-tax cash flows, including depreciation, are as follows:

Year    Truck      Pulley
1     $4,500           $9,300      
2     $4,500           $9,300      
3     $4,500           $9,300      
4     $4,500           $9,300      
5     $4,500           $9,300      

Calculate NPV of truck project.

Please Show Work

Explanation / Answer

Hi,

Please find the detailed answer as follows:

NPV = -17400 + 4500/(1+.1350)^1 + 4500/(1+.1350)^2 + 4500/(1+.1350)^3 + 4500/(1+.1350)^4 + 4500/(1+.1350)^5 = -1763.66

Thanks.

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