Campbell\'s Coffee Shop is trying to analyze a project that requires a $135,000
ID: 2729167 • Letter: C
Question
Campbell's Coffee Shop is trying to analyze a project that requires a $135,000 investment in fixed assets. When the project ends, those assets are expected to have an after-tax salvage value of $35,000. How should Campbell handle the $35,000 salvage value when computing the net present value of the project?
do not include in the net present value computation
reduce the cash outflow at time zero
add to cash inflow in the final year of the project
add to cash inflow in the year following the final year of the project
prorate and add to cash inflow over the life of the project
do not include in the net present value computation
reduce the cash outflow at time zero
add to cash inflow in the final year of the project
add to cash inflow in the year following the final year of the project
prorate and add to cash inflow over the life of the project
Explanation / Answer
The After Tax salvage value of the project assets is considered in NPV calculation and added to the cash flow in the final year of the project.
So correct option is the third one "add to cash inflow in the final year of the project"
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