Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica.

Assume the required return is 10%. What is the project's NPV?
A) $14,111
B) $27,322
C) $32,556
D) $34,737
E) $45,001

Question

Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica.

Assume the required return is 10%. What is the project's NPV?

Assume the required return is 10%. What is the project's NPV?
A) $14,111
B) $27,322
C) $32,556
D) $34,737
E) $45,001

Quizplus · Accepted Answer

The project's NPV can be calculated using the formula for NPV = $\sum \frac{R_t}{(1+i)^t} - C$, where $R_t$ is the cash inflow at time $t$, $i$ is the discount rate, and $C$ is the initial investment. Here, the cash inflow is $40,000 annually for 7 years, the discount rate is 10%, and the initial cost is $160,000. Using a financial calculator or NPV formula, the NPV is calculated to be approximately $34,737.

Bill Plans to Open a Do-It-Yourself Dog Bathing Center in a Storefront