An analyst gathered the following data about a project: -Costs are $8,000 plus $2,000 in shipping and installation. -For the next 5 years the project will annually generate $5,000 in sales and $2,000 in costs, not including depreciation. -The project is being depreciated on a straight-line basis over 5 years with no salvage value. -The company’s tax rate is 40%, and the weighted average cost of capital is 10%. What’s NPV of the project? The answer given is -$144. but I don’t know how to get the number. can anyone help?
Cash flow is: sales-cost-depreciation (2000 per year)*(1-0,4)+depreciation(2000). So annual cash flow is 2.600. Plug this in and you get -144. Regards, Miha
It was discussed many times before. Use the search function. http://www.analystforum.com/phorums/read.php?11,745778,745778#msg-745778
ah, I forgot to add back the depreciation cost! Thanks a lot & sorry I didn’t see previous post discussed this.