The following data pertain to an investment in equipment:Invst in proj $10,000Annual Net cash inflw 2,400Working cap. req 5,000salvage value of the equip $1,000Life of the proj 8 yearsAt the completion of the project, the working capital will be released for use elsewhere. Compute the net present value of the project, using a discount rate of 10%

The net present value of the project is comprised of initial outlay and the annual cash inflow discounted at present value of annuity discount factor of 5.3349. The working capital and salvage value will also be discounted at 10% in year 5. The discount factor for year 5(0.4665) could be derived from present value table. Thus, net present value is the difference between the present values and initial outlay.

anjithaka anjithaka · Answer 2 · 2022-07-11T14:23:49+02:00

Year Cashflow

0 (15,000) 1 (15,000)

1-8 2,400 5.3349 12,804

8 5,000 0.4665 2,333

8 1,000 0.4665 467

NPV(net present value) 604

What is the net present value?

Net present value = Present value of all yearly cash inflows after applying the discount factor - initial investment.

The net present value of the project exists composed of initial outlay and the annual cash inflow ignored at the present value of annuity discount factor of 5.3349. The working capital and salvage value will even be forgiven at 10% in year 5. The discount factor for year 5(0.4665) could be emanated from the present value table. Therefore, net present value exists as the distinction between the present values and initial outlay.

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