Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project?
A) Reduction in the cash outflow at Time 0
B) Cash inflow in the final year of the project
C) Cash inflow for the year following the final year of the project
D) Cash inflow prorated over the life of the project
E) Excluded from the net present value calculation

Question

Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project? 
A) Reduction in the cash outflow at Time 0 
B) Cash inflow in the final year of the project 
C) Cash inflow for the year following the final year of the project
D) Cash inflow prorated over the life of the project 
E) Excluded from the net present value calculation

Quizplus · Accepted Answer

The $45,000 salvage value is considered a cash inflow in the final year of the project because it represents the amount the company expects to receive from selling the fixed assets after the project ends. This inflow is included in the net present value calculation to reflect the recovery of some of the project's initial investment at its conclusion.

Rossiter Restaurants Is Analyzing a Project That Requires $180,000 of Fixed