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Calculate the net present value of the project

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Reference no: EM131632591

Question - The Aurelia Mining Company is considering the introduction of a new product to add to its existing product line. The company expects a reasonable level of sales for the next 5 years after this period the product sales are expected to be zero. Specialised equipment will need to be purchased to produce the new product. Additional working capital will need to be introduced over the life of the product. The working capital will be recovered at the end of the product's life.

Additional information:

Cost of New Equipment - $85,000

Additional Working Capital Requirements - $15,000

Depreciation is 20% prime cost (Straight Line)

The tax rate is 30%.                                 

Salvage value at the end of year 5 is $9,000.

After-tax cost of capital (Discount rate) - 9.00%

Year 1 Year 2 Year 3 Year 4 Year 5

Pre Tax Net Cash Flows $27,000 $24,000 $52,000 $47,000 $20,000

Required: Calculate the Net Present Value (NPV) of the project.

Reference no: EM131632591

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