Discretely-compounded-what is net present value of project

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Reference no: EM131354550

The Carrier Air Conditioning plant in Indiana has agreed not to move off shore and is considering an enhanced assembly line, to be installed this coming January 1, which will bring increased sales of $500,000 and costs of $250,000 at the end of 2017. Sales and costs are expected to increase in each subsequent year by the rate of inflation, which is forecast to be 2.5% per annum discretely-compounded. The project requires an initial investments (at the beginning of 2017) of $1, 800,000 which can be depreciated at the straight-line method to a zero book value over the 10 year life of the project. After 10 years the equipment will have $200,000 resale value (in nominal terms). The newly applicable corporate tax rate will be 15%. The required (nominal) rate of return is 7% per annum, discretely-compounded. What is the net present value of this project? -$64, 250 $38, 967 $125, 386 $242, 058

Reference no: EM131354550

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