Sol\'s Sporting Goods is expanding, and as a result expects additional operating

Question

Sol's Sporting Goods is expanding, and as a result expects additional operating cash flows of $26,000 a year for 4 years. This expansion requires $44,000 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires an additional $5,000 of net working capital throughout the life of the project; Sol expects to recover this amount at the end of the project. What is the net present value of this expansion project at a 16 percent required rate of return?

$25,514.15

$16,227.45

$27,928.31

$21,033.33

$29,416.08

$25,514.15

$16,227.45

$27,928.31

$21,033.33

$29,416.08

Explanation / Answer

On a financial calculator, insert

CF0 = -44,000 - 5,000 = -49,000

CF1 = CF2 = CF3 = 26,000

CF4 = 26,000 + 5,000 = 31,000

and I/Y = 16%

=> Compute NPV = $26,514.15

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