You are also considering another project that has a physical life of 3 years; that is, themachinery
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Question:
You are also considering another project that has a physical life of 3 years; that is, themachinery will be totally worn out after 3 years. However, if the project were terminatedprior to the end of 3 years, the machinery would have a positive salvage value. Here arethe project's estimated cash flows:YearInitial Investment andOperating Cash FlowsEnd-of-YearNet Salvage Value0 $5,000 $5,0001 2,100 3,1002 2,000 2,0003 1,750 Using the 10% cost of capital, what is the project's NPV if it is operated for the full3 years?
Would the NPV change if the company planned to terminate the project at the end of Year 2? At the end of Year 1?Please show work and formulas.
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