Computation of net present value

Reference no: EM1313588

Computation of Net present Value of the project and the decision making

A firm wishes to bid on a contract that is expected to yield the following after-tax net cash flow at the end of each year-

Year Net Cash Flow
1 $5,000
2 8,000
3 9,000
4 8,000
5 8,000
6 5,000
7 3,000
8 $ -1,500

To secure the contract, the firm must spend $30,000 to retool its plant. This retooling will have no salvage value at the end of the 8 years. Comparable in-vestment alternatives are available to the firms that earn 12 percent com-pounded annually. The depreciation tax benefit from the retooling is reflected in the net cash flows in the table.

a. Compute the project's net present value.

b. Should the project be adopted?

c. What is the meaning of the computed net present value figure?

Reference no: EM1313588

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