Net Present Value

For discount factors use Exhibit 12B-1 and Exhibit 12B-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 products 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				$
		Total		$
14				$
		Total		$
5				$
		Total		$

2. Calculate the NPV using only discount factors from Exhibit 12B.1 $

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