Carson Trucking is considering whether to expand its regional service center in? Mohab, UT. The expansion requires the expenditure of?$11, 000, 000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to?$3, 000, 000 per year for each of the next 9 years. In year 9 the firm will also get back a cash flow equal to the salvage value of the? equipment, which is valued at?$1.2 million.? Thus, in year 9 the investment cash inflow totals?$4 200 000. Calculate the? project's NPV using a discount rate of 10 percent.

Question

Mathematics

Elena Carey

30 July, 14:09

Carson Trucking is considering whether to expand its regional service center in? Mohab, UT. The expansion requires the expenditure of?$11, 000, 000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to?$3, 000, 000 per year for each of the next 9 years. In year 9 the firm will also get back a cash flow equal to the salvage value of the? equipment, which is valued at?$1.2 million.? Thus, in year 9 the investment cash inflow totals?$4 200 000. Calculate the? project's NPV using a discount rate of 10 percent.

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Miguel Rhodes · Answer 1

NPV = $ 17,200,000

Step-by-step explanation:

Total expenditures = $ 11,000,000

Net cash inflow = $ 3,000,000 per year

total duration of cash inflow = 9 years

Thus, total cash inflow = $ 3,000,000 per year * 9 years = $ 27,000,000

salvage value = $ 1.2 million = $ 1,200,000

NPV = Salvage value + total cash flow - Expenditures

on substituting the values, we get

NPV = $ 1,200,000 + $ 27,000,000 - $ 11,000,000

or

NPV = $ 17,200,000