Question

(Ignore income taxes). Dunay Corporation is considering investing $510,000 in a project. The life of the project would be 4 years. The project would require additional working capital of $24,000 which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $162,000. The salvage value of the assets used in the project would be $41,000. The company uses a discount rate of 10%.

Compute the net present value of the project.

Answer 1

Answer:

NPV = $23,914.076

Explanation:

The net present value NPV) of a project is the present value of cash inflow less the present value of cash outflow of the project.

NPV = PV of cash inflow - PV of cash outflow

PV of cash inflow= 162,000 × (1- 1.1^(-4)/0.1)=513518.2023

PV of salvage value = 41,000× 1.1^(-4)= 28,003.55167

PV of recouped working capital = 24,000 × 1.1^(-4)=  16,392.32293

NPV = 513518.2023  + 28,003.55167  +16,392.32293 - (510,000+24,000)

=23914.076

NPV = $23,914.076