A firm is evaluating a project which will cost $7,586 today and provide addition

Question

A firm is evaluating a project which will cost $7,586 today and provide additional cash flows in years 1, 2, 3 and 4 of $5,568, $2,586, $2,586, and $7,560, respectively. The project will also employ $5,000 in working capital during the life of the project (allocated at the beginning and paid back in the last period). Its salvage value at the end of year 4 will be zero and the company uses a straight line depreciation schedule. The firm uses a discount rate of 8%? What is the NPV

Select one:

a. $5,986

b. $7,396

c. $12,396

d. $13,182

e. $8,721

Explanation / Answer

Compute NPV.

Year Cash Flows Discount @ 8% 0 -7586 1 -7586 0 -5000 1 -5000 1 5568 0.925926 5155.556 2 2586 0.857339 2217.078 3 2586 0.793832 2052.85 4 7560 0.73503 5556.826 4 5000 0.73503 3675.149 Net Present value 6071.459

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