A project will produce an operating cash flow of 7300 a year

A project will produce an operating cash flow of $7,300 a year for three years. The initial cash investment in the project will be $11,000. The net after-tax salvage value is estimated at $3,200 and will be received during the last year of the project\'s life. What is the net present value of the project if the required rate of return is 11%?

Solution

Initial Investment = $11,000
Annual Cash Flows = $7,300
After-tax Salvage Value = $3,200

Life of Project = 3 years
Required Rate of Return = 11%

NPV = -$11,000 + $7,300 * PVIFA(11%, 3) + $3,200 * PVIF(11%, 3)
NPV = -$11,000 + $7,300 * (1 - (1/1.11)^3) / 0.11 + $3,200 / 1.11^3
NPV = -$11,000 + $17,839.12 + $2,339.81
NPV = $9,178.93

So, NPV of this project is $9,178.93