Exhibit 9-2
The following data are projected for a possible investment project:

-Refer to Exhibit 9-2.The project requires an initial investment of $300,000 on equipment.Working capital is anticipated to be variable at 10% of revenues; the working capital investment must be made at the beginning of each period,and will be recovered in full at the end of year 4.Equipment will be sold at its book value at the end of year 4.The tax rate is 40%.
What is the net present value of the project if the firm's discount rate is 10%?

Question

Exhibit 9-2
The following data are projected for a possible investment project:
 
-Refer to Exhibit 9-2.The project requires an initial investment of $300,000 on equipment.Working capital is anticipated to be variable at 10% of revenues; the working capital investment must be made at the beginning of each period,and will be recovered in full at the end of year 4.Equipment will be sold at its book value at the end of year 4.The tax rate is 40%.
What is the net present value of the project if the firm's discount rate is 10%?

Quizplus · Accepted Answer

11ea7eff_73db_b474_92e1_514946bd0f64_TB3891_00 NPV = -312,000 + 80,400/1.1 + 80,800/1.1² + 81,200/1.1³+ 201,600/1.1⁴= 26,570

Exhibit 9-2 The Following Data Are Projected for a Possible Investment Project