Net Present Value

For discount factors use Exhibit $12$B$-1$ and Exhibit $12$B$-2.$

Talmage Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of $$2,700,000.$ Producing the printer requires an investment in new equipment costing $$2,880,000.$ The printer has a projected life cycle of $5$ years. After $5$ years, the equipment can be sold for $$360,000.$ Working capital is also expected to decrease by $$360,000,$ which Talmage will recover by the end of the new product$$s life cycle. Annual cash operating expenses are estimated at $$1,620,000.$ The required rate of return is $8\%.$

Required:

$1.$ Prepare a schedule of the projected annual cash flows.

Year Item Cash Flow

$0$

Equipment

$fill in the blank $2$

Working capital

fill in the blank $4$

Total $fill in the blank $5$

$14$

Revenues

$fill in the blank $7$

Operating expenses

fill in the blank $9$

Total $fill in the blank $10$

$5$

Revenues

$fill in the blank $12$

Operating expenses

fill in the blank $14$

Salvage

fill in the blank $16$

Recovery of working capital

fill in the blank $18$

Total $fill in the blank $19$

$2.$ Calculate the NPV using only discount factors from Exhibit $12$B$\mathrm{.}1$

$fill in the blank $20$

$3.$ Calculate the NPV using discount factors from both Exhibits $12$B$\mathrm{.}1$ and $12$B$\mathrm{.}2$

$fill in the blank $21$