My sites 18W-MGMT130A-2 FinaFinal Control Panel Quiz navigation Question 3 You a

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My sites 18W-MGMT130A-2 FinaFinal Control Panel Quiz navigation Question 3 You are considering a 3-year project with an initial cost of S414,000. The project will not direcly produce any sales but will reduce operating costs by $265,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated $43,000. The tax rate is 34%. The project will require $23,000 in extra inventory for spare parts and accessories at its beginning, which will be recuperated at the end of the project, what is the NPV of the project if the required rate of returm is 9 percent? Not yet 6910111 12 13 14 100ts out of 15 16 17 18 19 20 21 r sten 8 9 10 11 12 13 14 Y Fla Select one: a. $109171 Ob. $128646 , $164166 d. $295500 e. $142252 22 23 Finish attempt... Previous page Next page

Explanation / Answer

Annual Cash Inflows: Saving in operating cost 265000 Less: Depreciation (414000-43000)/3: 123667 42046.78 Net savings 141333 174900 Less: Tax @ 34% 48053 Net income after tax 93280 Add: Depreciation 123667 Annual Cash Inflows: 216947 Present value of cash inflows: Present value of cash inflows ($216947*Annuity factor i.e.2.535) 549960.6 Present value of salvage value (43000*0.772) 33196 Present value of Inventories realised (23000*0.772) 17756 Total present value of inflows 600912.6 Less: Outflows (414000+23000) 437000 NET PRESENT VALUE 163912.6 Answer is C. $ 164166

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