The following data concern an investment project: Investment in equipment $110,000 Annual cash...


The following data concern an investment project:

Investment in equipment$110,000
Annual cash inflows$36,000
Required upgrade at end of year 2$14,000
Salvage value of the equipment$10,000
Working capital required$50,000
Life of the project4 years
Required rate of return8%

The working capital will be released for use elsewhere at the conclusion of the project.

Compute the project's net present value.

Net Present Value:

To compute the net present value we subtract the cash outflows' present value from the cash inflows' present value. Any investment is feasible only if it has a positive net present value.

Answer and Explanation: 1

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Computation of net present value

Year PVF @ 8% Amount Present Value
Cash Outflows

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How to Calculate Net Present Value: Definition, Formula & Analysis


Chapter 5 / Lesson 20

Learn about what net present value is, how it is calculated both for a lump sum and for a stream of income over multiple years. View some examples on NPV.

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