Determine if this project is profitable under the following circumstances:
A company is undertaking a new project.The specialized equipment that needs to be bought has an expense of $28,000.In addition, permits and licenses are required which will cost $1500.Employee training will be an additional $46,000 expenditure.To produce the merchandise, raw materials are required that will cost $48,000 and this project will generate cash flows of $25,000 per year for 10 years.The cost of capital for this project is 12%.

Question

Quizplus · Accepted Answer

Solution using a financial calculator:
Determine the initial expense:
$28,000 + $1,500 + $46,000 + $48,000 = $123,500 initial investment
Determine the NPV using the TIBAII: CF₀ = -123,500
CF₁ = 25,000
F₁ = 10
I = 12
NPV = $17,755.58

Determine If This Project Is Profitable Under the Following Circumstances