Fitchminster Armored Car can purchase a new vehicle for $200,000 that will provide annual net cash flow over the next five years of $40,000,$45,000,$50,000,$55,000,and $60,000.The salvage value of the vehicle will be $25,000.Assume that the vehicle is sold at the end of year 5.Calculate the NPV of the armored car if the required rate of return is 9%.(Round your answer to the nearest $1. )

Question

Quizplus · Accepted Answer

The NPV is calculated as follows:NPV = -Initial Investment + Sum of Present Value of Annual Net Cash Flows + Present Value of Salvage ValueNPV = -$200,000 + $40,000/(1+0.09)^1 + $45,000/(1+0.09)^2 + $50,000/(1+0.09)^3 + $55,000/(1+0.09)^4 + $60,000/(1+0.09)^5 + $25,000/(1+0.09)^5NPV = -$200,000 + $36,697 + $33,663 + $30,930 + $28,426 + $26,125 + $19,483NPV = $7,390

Fitchminster Armored Car Can Purchase a New Vehicle for $200,000