Trucking is considering whether to expand its regional service center in Mohab,
ID: 2817694 • Letter: T
Question
Trucking is considering whether to expand its regional service center in Mohab, U equipment, which is valued at $1 million. Thus, in year 9 the investment cash inflow (Net present value calculation) Carson Trucking is considering whother to e T. The expansion requires the expenditure of $9,000,000 on new year for each of the next 9 years. In year 9 the firm will also get back a service equipment and would generate annual net cash inflows from reduced costs of operations equal to $3,500,000 per cash flow equal to the salvage value of the rate of 6 percent. totals $4,500,000. Calculate the project's NPV using a discount If the discount rate is 6 percent, then the projects NPV is S1] (Round to the nearest dollar)Explanation / Answer
Year
Cash Flow (C)
PV Factor Calculation
PV Factor @ 6 % (F)
PV (= C x F)
0
$ (9,000,000)
1/(1.06)^0
1
$ (9,000,000.00)
1
$3,500,000
1/(1.06)^1
0.9433962264
$ 3,301,886.79
2
$3,500,000
1/(1.06)^2
0.8899964400
$ 3,114,987.54
3
$3,500,000
1/(1.06)^3
0.8396192830
$ 2,938,667.49
4
$3,500,000
1/(1.06)^4
0.7920936632
$ 2,772,327.82
5
$3,500,000
1/(1.06)^5
0.7472581729
$ 2,615,403.61
6
$3,500,000
1/(1.06)^6
0.7049605404
$ 2,467,361.89
7
$3,500,000
1/(1.06)^7
0.6650571136
$ 2,327,699.90
8
$3,500,000
1/(1.06)^8
0.6274123713
$ 2,195,943.30
9
$4,500,000
1/(1.06)^9
0.5918984635
$ 2,663,543.09
NPV
$ 15,397,821.42
NPV of the project at discount rate of 6 % is $ 15,397,821
Year
Cash Flow (C)
PV Factor Calculation
PV Factor @ 6 % (F)
PV (= C x F)
0
$ (9,000,000)
1/(1.06)^0
1
$ (9,000,000.00)
1
$3,500,000
1/(1.06)^1
0.9433962264
$ 3,301,886.79
2
$3,500,000
1/(1.06)^2
0.8899964400
$ 3,114,987.54
3
$3,500,000
1/(1.06)^3
0.8396192830
$ 2,938,667.49
4
$3,500,000
1/(1.06)^4
0.7920936632
$ 2,772,327.82
5
$3,500,000
1/(1.06)^5
0.7472581729
$ 2,615,403.61
6
$3,500,000
1/(1.06)^6
0.7049605404
$ 2,467,361.89
7
$3,500,000
1/(1.06)^7
0.6650571136
$ 2,327,699.90
8
$3,500,000
1/(1.06)^8
0.6274123713
$ 2,195,943.30
9
$4,500,000
1/(1.06)^9
0.5918984635
$ 2,663,543.09
NPV
$ 15,397,821.42
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