FMC Technologies is considering a project that requires 2380

FMC Technologies is considering a project that requires $2,380,000 of fixed assets. When the project ends, those assets are expected to have an after-tax salvage value of $145,000. How is the $145,000 salvage value handled when computing the net present value of the project?

Select one:

a. reduction in the cash outflow at time zero

b. cash inflow in the final year of the project

c. cash inflow for the year following the final year of the project

d. cash inflow prorated over the life of the project

e. not included in the net present value

What is the NPV for the following project if its cost of capital is 15 percent and it’s initial after tax cost is $6,000,000 and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3 and $1,600,000 in year 4?

Select one:

a. $371,764

b. ($965,527)

c. ($137,053)

d. ($1,034,511)

Solution

Question 1

b. cash inflow in the final year of the project

After tax salvage is a cash flow received at the end of the project by way of sale of Fixed asset.

Question 2

Answer is b. ($965,527)