Sarafin Inc.is considering a project that would require an initial investment of $693,000 and would have a useful life of 7 years.The annual cash receipts would be $416,000 and the annual cash expenses would be $208,000.The salvage value of the assets used in the project would be $35,000.The company's tax rate is 30%.For tax purposes,the entire initial investment without any reduction for salvage value will be depreciated over 5 years.The company uses a discount rate of 15%.
Required:
Compute the net present value of the project.

Question

Quizplus · Accepted Answer

The Answer of Sarafin Inc.is considering a project that would require an initial investment of $693,000 and would have a useful life of 7 years.The annual cash receipts would be $416,000 and the annual cash expenses would be $208,000.The salvage value of the assets used in the project would be $35,000.The company's tax rate is 30%.For tax purposes,the entire initial investment without any reduction for salvage value will be depreciated over 5 years.The company uses a discount rate of 15%.
Required:
Compute the net present value of the project.