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A project will produce an operating cash flow of $56,200 a year for 5 years. The initial fixed asset investment in the project will be $238,900. The net aftertax salvage value is estimated at $67,000 and will be received during the last year of the project's life. What is the net present value of the project if the required rate of return is 15.2 percent

Respuesta :

Answer :

Net present value = -$18,375

Explanation :

As per the data given in the question,

Initial investment = $239,800

The project will generate operating cash flow pf $56,200 for 5 years

So present value of operating cash flow :

PMT = $56,200

N = 5 years

Rate = 15.2%

FV = $0

Now applying the formula

= -PV(RATE,NPER,PMT,FV,0)

The present value comes $187,502

Now

FV = $67,000

n = 5 years

Rate = 15.2%

PMT = $0

Now applying the formula

= -PV(RATE,NPER,PMT,FV,0)

The present value comes $33,023

Now the Net present value is

= ($33,023 + $187,502) - $238,900

= -$18,375

Tundexi

The net present value of the project will be ($18,375) if the required rate of return is 15.2%.

Step 1

Given Information

PMT = $56,200

N = 5 years

Rate = 15.2%

FV = $0

Present value = -PV(RATE,NPER,PMT,FV,0)

Present value = -PV( 15.2%, 5, 56200, 0 )

Present value =  $187,502

Step 2

Given Information  

FV = $67,000

n = 5 years

Rate = 15.2%

PMT = $0

Present value = -PV(RATE,NPER,PMT,FV,0)

Present value = -PV(15.2%, 5, 67000, 0)

Present value = $33,023

Step 3

The Net present value = (Present value 2 -Present value 1) -  Initial investment

The Net present value = ($33,023 + $187,502) - $238,900

The Net present value = -$18,375

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