A project is expected to create operating cash flows of $32,000 a year for three

Question

A project is expected to create operating cash flows of $32,000 a year for three years. The initial cost of the fixed assets is $66,000. These assets will be worthless at the end of the project. An additional $3,500 of net working capital will be required throughout the life of the project. What is the project's net present value if the required rate of return is 14 percent? A project is expected to create operating cash flows of $32,000 a year for three years. The initial cost of the fixed assets is $66,000. These assets will be worthless at the end of the project. An additional $3,500 of net working capital will be required throughout the life of the project. What is the project's net present value if the required rate of return is 14 percent?

Explanation / Answer

Statemnet showing Cash flows Particulars Time PVf@14% Amount PV Cash Outflows (Initial Invt)                          -                  1.00 (66,000.00)      (66,000.00) Cash Outflows (WC)                          -                  1.00     (3,500.00)         (3,500.00) PV of Cash outflows      (69,500.00) Cash inflows                     1.00           0.8772     32,000.00         28,070.18 Cash inflows                     2.00           0.7695     32,000.00         24,622.96 Cash inflows                     3.00           0.6750     32,000.00         21,599.09 Cash inflows(WC)                     3.00           0.6750        3,500.00           2,362.40 PV of Cash Inflows         76,654.63 NPV           7,154.63

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