IV: Capital Budgeting Decision (16 points) Techview Company has an opportunity t

Question

IV: Capital Budgeting Decision (16 points) Techview Company has an opportunity to invest in a new project- produce and sell a smart lock that can control access to home using smart phone. To produce the smart locks, Techview needs to buy a machine that costs $410,000 and can last for 8 years. The machine is estimated to have a salvage value of $20.500 at the end of the 8 years. The machine requires a major repair at the end of 4 years at a cost of $20,000. The production and sales of the smart a working capital investment of $9,000, all of which of the life of the machine. The new project can generate annua of $123,000 per year over the life of the machine. The company uses a discounted rate of 10% on all investment projects. Determine the net present value of this new project. locks immediately requires the end will be released for use elsewhere at revenues (after offsetting costs) Ans:$

Explanation / Answer

Solution:

Calculation of NPV Initial Investment 410000 Working Capital Investment 9000 Add:- Major Repair Costs at the end of 4th year 13660 (20000*0.6830) Less- Salvage Value of Machine 9563.25 (20500*0.4665) Less:- Recovery of Working Capital Invested 4198.5 (9000*0.4665) Total PV of Outflow 418898.25 Inflow per year 123000 Sum of PV Factor of 8Years @ 10% 5.3349 PV of Inflows 656192.7 NPV 237294.45

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