Question

David Corporation is considering a capital budgeting project that would require an initial investment of $440,000 and working capital of $32,000. The working capital would be returned for use elsewhere at the end of the project in 4 years. The investment would generate annual cash inflows of $147,000 for the life of the project. At the end of the project, equipment that had been used in the project could be sold for $11,000. The company's discount rate is 7%. The net present value of the project is closest to:

Answer 1

Answer:

$58,724.55

Explanation:

Net present value is the present value of after tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

Cash flow in year 0 = $440,000 + $32,000 = $-472,000

Cash flow each year from year 1 to 3 = $147,000

Cash flow in year 4 = $147,000 + $11,000 + $32,000 = $190,000

I = 7%

NPV = $58,724.55

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you