The following data on a proposed investment project have been provided: cost of equipment $50,000 working capital required $30,000 salvage value of equipment $0 annual cash inflows from the project $20,000 required rate of return 20% life of the project 8 years the working capital would be released for use elsewhere at the end of the project. what is the net present value of the project?

YearCashflow[email protected]%            PV

           $                        $

0         (80,000)            1  (80,000)

1-8          20,000            3.8372  76,744

8              30,000              0.2326         6,978

                 NPV          3,722

Discount factor for year 1 to 8

1 -(1+r)-n/r

1-(1+0.2)-8/0.2 = 3.8372

Discount factor for year 8

(1+r)-n  

(1+0.2)-8

Explanation:

In this case, we need to add working capital to the initial outlay ie $50,000 + $30,000 = $80,000. Then, we will discount the annual cashflows at 3.8372, which is present value of annuity factor using the formula 1 -(1+r)-n/r. We will dicount the cashflow for year 8(working capital) at discount factor for year 8 using the formula(1+r)-n . Thereafter, we will multiply the cashflows by the discount factors to obtain the present values. Finally, we will deduct the initial outlay from the present values so as to determine the NPV.

the investment was $14,174.196

explanation:

a lump sum means that the father of the example made one deposit and leave it be.

we need to know the value of a capital that generated at 4.05% per year during 28 years the sum of $48,613.24

now clearing the formula to solve for capital we got:

and we reach the answer investment = $14,174.20

answer; measurable outcome;