What is the net present value of this investment opportunity

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Question - A company has the opportunity to expand its business operations by acquiring new plant and equipment. The plant and equipment will cost $90,000 and have a useful life of 6 years. At the end of the period the plant and equipment will have a salvage value of $11,000. The Tax Office allows the company to depreciate this equipment at 20% per annum using the prime cost method (straight line). The tax rate is 30%, and is paid in the year of income. An additional working capital investment of $22,000 is also required and will be recouped in the final year of the project. Additional gross operating revenues from the investment are expected to be:

Year 1 = $22,000; Year2 = $42,000; Year 3 = $48,000; Year 4 = $40,000; Year 5 = $29,000; and Year 6 = $15,000.

The company requires a rate of return on their investments of 12%. What is the Net Present Value of this investment opportunity?

Reference no: EM133149975

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