**drop down: accepted or rejected Expected annual revenues, $1,506,000 A project

Question

**drop down: accepted or rejected

Expected annual revenues, $1,506,000 A projected product life cycle of five years Equipment, $1,592,000 with a salvage value of $195,000 after five years Expected increase in working capital, $188,000 (recoverable at the end of five years) Annual cash operating expenses are estimated at $928,000 The required rate of return is 12 percent. (See Exhibit 19B-1 & Exhibit 19B-2) 1. Estimate the annual cash flows for the tablet project by completing the following table: Cash outflows may be entered as negative numbers Year Item Cash Flow Equipment Working capital Total 1-4 Revenues Operating expenses Total Revenues Operating expenses Salvage Recovery of working capital Total 5 2. Using the estimated cash flows, calculate the NPV (round the discount factor to three decimal places and the present values to the nearest dollar): NPV = Thus, the project would be - Select your answer-T

Explanation / Answer

Equipment

Working Capital

Total

1592000

188000

Revenue

Operating Expenses

Total

6024000

(3712000)

Revenue

Salvage

Recovery Of Working Capital

Total

1506000

195000

188000

Calculation of NPV:-

NPV = 2300885.129 - 1610800 =690085.129

NPV is positive so, project will be accepted.

Year Item Cash Flow 0

Equipment

Working Capital

Total

1592000

188000

1610800 1-4

Revenue

Operating Expenses

Total

6024000

(3712000)

2312000 5

Revenue

Salvage

Recovery Of Working Capital

Total

1506000

195000

188000

1889000

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