Kamili Company is planning to buy a wind-powered electricity generator at a cost

Question

Kamili Company is planning to buy a wind-powered electricity generator at a cost of $300,000. Because the generator is environmentally friendly, the state government will give Kamili a cash incentive payment of $50,000 on the day the generator is purchased. In addition, the generator will create net cash inflows at the end of each year for the next 4 years of $75,000. At the end of 4 years, the generator will have a salvage value of $40,000. Kamilis discount rate is 11%. Compute the net present value of the generator.

Explanation / Answer

Kamili Company NPV Details Details Year 0 Year 1 Year 2 Year 3 Year 4 Generator cost       (300,000) Cash Incentive            50,000 Net Cash inflow          75,000               75,000      75,000            75,000 Salvage value            40,000 Total yearly net cash flow       (250,000)          75,000               75,000      75,000         115,000 Discount factor@11%                       1          0.9009               0.8116      0.7312            0.6587 PV of cash flows       (250,000)          67,568               60,872      54,839            75,754 NPV = $    9,032.67

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.