Problem:
Campbell's Coffee Shop is trying to analyze a project that requires a $135,000 investment in fixed assets. When the project ends, those assets are expected to have an after-tax salvage value of $35,000.
Requirement:
Question: How should Campbell handle the $35,000 salvage value when computing the net present value of the project?
- Do not include in the net present value computation
- Reduce the cash outflow at time zero
- Add to cash inflow in the final year of the project
- Add to cash inflow in the year following the final year of the project
- Prorate and add to cash inflow over the life of the project
Note: Please explain comprehensively and give step by step solution.