Question

Bruno's Lunch Counter is expanding and expects operating cash flows of $26,100 a year for 4 years as a result. This expansion requires $62,000 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires $3,600 of net working capital throughout the life of the project. What is the net present value of this expansion project at a required rate of return of 12 percent

Answer 1

Answer:

Year  Cash-flow   DF at 12%   Discounted cash flow

0       -$65,600         1.00           -$65,500

1          $26,100         0.8929       $23,303.57

2         $26,100         0.7972       $20,806.76

3         $26,100         0.7118         $18,577.46

4         $26,100         0.6355       $18,874.89

Net present value                       $15,962.68