Solution-Calculate the net present value for the proposed

Calculate the net present value for the proposed purchase

Reference no: EM133115246

Question - The directors of Shenzhen Rail Ltd are considering the purchase of a new high-speed train. The details of the proposal are as follows:

Cost: $6,000,000

Additional revenues generated per year: $1,500,000

Additional operating and maintenance costs per year: $260,000

Required rate of return: 12 per cent.

(All cash flows occur at the end of each year) The company has a policy of keeping its trains for only four years. Consistent with this policy, if the new train is purchased it will be traded-in on a new train after four years. At that time the train is expected to have a trade-in value of $1,500,000.

Required -

(a) Calculate the net present value for the proposed purchase of a new high-speed train and specify whether the project is acceptable.

(b) Explain how money is said to have a 'time value'.

Can someone please explain this step by step with the formula used for NPV.

Reference no: EM133115246

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Calculate the net present value for the proposed purchase

Reference no: EM133115246

Reference no: EM133115246

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