Byerly Corporation has provided the following data concerning an investment project that it is considering: Initial investment $ 670,000 Working capital $ 61,000 Annual cash flow $ 227,000 per year Salvage value at the end of the project $ 20,000 Expected life of the project 3 years Discount rate 10 % Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. The working capital would be released for use elsewhere at the end of the project. The net present value of the project is closest to:

NPV  =$ (105,628.1)

Explanation:

The NPV is the difference between the PV of cash inflows and the PV of cash outflows. A positive NPV implies a good investment decision and a negative figure implies the opposite.  

NPV of an investment:  

NPV = PV of Cash inflows - PV of cash outflow  

PV of cash inflow= A × (1-  (1+r)^(-n) )/r

A- annual cash inflow,

r- discount rate

n- number of years

DATA

A- 227,000

r-  10%

n- 3

PV of cash inflow = 227,000 × (1- 1.1^(-3))/0.1 =  564,515.40  

PV of salvage value = S × (1+r)^(-n) = 20,000 × 1.1^(-3) =  15,026.30  

PV of Cash outflow = Initial investment cost + Working capital

                                 = 670,000 + 61,000 = 731,000

PV of working capital recouped = C× (1+r)^(-n)= 61,000 × 1.1^(-3) =  45,830.20

                                                                                     $

PV of cash inflow =                                               564,515.40

PV of working capital recouped                           45,830.20

PV of salvage value                                               15,026.30  

PV of Cash outflow                                                (731,000)

NPV                                                                         (105,628.1)

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