Rossiter restaurants is analyzing a project that requires 180,000 of fixed assets. when the period ends, those assets are expected to have an after tax salvage value of 45,000, how is the 45,000 salvage value handled when computing the net present value of the project?

a) reduction in the cash outflow at time zero

b) cash inflow in the final year of the project

c) cash inflow for the year following the final year of the project

d) cash inflow prorated over the life of the project

e) not included in the net present value

Question

Business

Sandy

12 December, 02:24

Rossiter restaurants is analyzing a project that requires 180,000 of fixed assets. when the period ends, those assets are expected to have an after tax salvage value of 45,000, how is the 45,000 salvage value handled when computing the net present value of the project?

a) reduction in the cash outflow at time zero

b) cash inflow in the final year of the project

c) cash inflow for the year following the final year of the project

d) cash inflow prorated over the life of the project

e) not included in the net present value

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Answers (1)

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Lefty · Answer 1

b) cash inflow in the final year of the project

Explanation:

After tax salvage value is considered a terminal cashflow; meaning, it is received at the end of the project. When a company decides to sell fixed assets like machinery or buildings that were used in a project, they will receive the cash, pay tax and keep the rest of the money. This net amount is included in calculation of NPV of the project by finding its present value.