Reference no: EM132504516

Capital Budgeting:

1. The cost to install the needed equipment will be $105,000 and this cost is incurred prior to any cash is received by the project.
2. The gross revenues from the project will be $25,000 for year 1, then $27,000 for years 2 - 4. Year 5 will be $23,000.
3. The expected annual cash outflows (current project costs) are estimated at being $13,000 for the first year, then $12,000 for years 2, 3, and 4. The final year costs will be $10,000. ( not included interest and loans)
4. Company will borrow funds from your bank at 3%.
5. After 5 years the equipment will stop working and will be worthless.
6. The discount rate you are assuming continues to be 6%.

Question 1: we need to calculate the NPV ?

Question 2: How the interest expenses is calculated ? simple or compound interest and why.

Question 3: Why the principle loan payment is not considered in the capital budgeting ?