Floyd Clymer is the CFO of Mid-America Mustang, a manufacturer of parts for classic automobiles. Floyd is
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Floyd Clymer is the CFO of Mid-America Mustang, a manufacturer of parts for classic automobiles. Floyd is considering the purchase of a 2-ton press which will allow the firm to stamp out auto fenders. The equipment costs $250,000. The project is expected to produce after-tax cash flows of $60,000 the first year, and increase by $10,000 annually; the after-tax cash flow in year 5 will reach $100,000. Liquidation of the equipment will net the firm $10,000 in cash at the end of 5 years, making the total cash flow in year five $110,000. Assume the required return is 15%. What is the project's net present value?
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