Consider a project that lasts three years and requires an initial capital expenditure for an asset costing $250,000. You can depreciate the asset in a straight line over five years, although you plan to sell the asset after the three years for $150,000. You expect the project to generate 2,000 units per year (for each of the three years of the project). In year 1 you expect to be able to sell the units for $80 each, but you expect prices to rise to $90 in year 2 and $100 in year 3. You expect operating costs to remain constant at $100,000 per year. Finally, the project requires an immediate working capital investment of $250,000 which is recovered after two years. To calculate these estimates, you conducted market research which cost you $10,000.

 What is the NPV of the project? Assume a 30% tax rate and the opportunity cost of capital is 6%.

Answer rating: 100% (QA)

To calculate the Net Present Value NPV of the project you need to calculate the cash flows for each year and then discount them to present value using ... View the full answer