Question: Avanti, Inc. is faced with an investment project. The following data is associated with this project:
|
|
|
Allowable Depreciation
|
|
Year
|
Net Income*
|
for 3-Yr. MACRS class
|
|
1
|
$50,000
|
0.33
|
|
2
|
60,000
|
0.45
|
|
3
|
70,000
|
0.15
|
|
4
|
60,000
|
0.07
|
Suppose no interest expenses & a zero tax rate.
The project involves an initial investment of dollar 100,000 in equipment that falls in the three year MACRS class and has an estimated salvage value of dollar 15,000. In addition, the company expects an initial increase in net operating working capital of $5,000 which will be recovered in four year. The cost of capital is 10.5%. Calculate the project's net present value?