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Mattice Corporation is considering investing $825,000 in a project. The life of the project would be 10 years. The project would require additional working capital of $22,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $154,000. The salvage value of the assets used in the project would be $32,000. The company uses a discount rate of 15%. (Ignore income taxes.)
Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using the tables provided.
Required:
Compute the net present value of the project. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar amount.)
Expert Answer
Initial Investment = $825,000
Life of Project = 10 years
Additional NWC required = $22,000
Annual Cash Inflow = $154,000
Salvage Value = $32,000
Discount rate = 15%
Net Present Value = – Initial Investment – Additional NWC required + PV of Annual Cash Inflows + PV of Salvage Value + PV of NWC recovered
Net Present Value = -$825,000 – $22,000 + $154,000 * PV Annuity of $1 (15%, 10) + $32,000 * PV of $1 (15%, 10) + $22,000 * PV of $1 (15%, 10)
Net Present Value = -$825,000 – $22,000 + $154,000 * 5.0188 + $32,000 * 0.2472 + $22,000 * 0.2472
Net Present Value = -$60,756
