Calculate the npv of the project, incorporating the salvage

Reference no: EM133633193

A project requires an initial outlay of $500,000 and is expected to generate cash inflows of $150,000 per year for 6 years. At the end of the 6th year, the project's assets can be sold for a salvage value of $50,000. The firm's cost of capital is 8%.

Task: Determine the NPV of the project, including the salvage value.

Solution: PVIFA (8%, 6 years) ≈ 4.623. PV of Salvage Value = $50,000 / (1 + 0.08)^6 ≈ $31,688. NPV = -Initial Investment + (Annual Cash Flows × PVIFA) + PV of Salvage Value NPV = -$500,000 + ($150,000 × 4.623) + $31,688 NPV = -$500,000 + $693,450 + $31,688 NPV = $225,138

Is the solution right if so explain how it right ? please go by step by step

Company B is evaluating a project that requires an initial investment of $2,500,000. This project is expected to produce cash inflows of $800,000 for 6 years. At the end of the project's life, the equipment can be sold for a salvage value of $200,000. The company's required rate of return is 8%.

Required:

Calculate the NPV of the project, incorporating the salvage value.
NPV = -$2,500,000 + ($800,000 / 1.08) + ($800,000 / 1.08^2) + ($800,000 / 1.08^3) + ($800,000 / 1.08^4) + ($800,000 / 1.08^5) + ($800,000 / 1.08^6) + ($200,000 / 1.08^6) = $336,820.42 (rounded)

Reference no: EM133633193

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