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    tdjames's Avatar
    tdjames Posts: 1, Reputation: 1
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    #1

    Oct 12, 2009, 08:50 AM
    Net Present Value
    Hello- I'm working on the following question:

    Here is my work for finding NPV, I guess I'm unsure where I went wrong:
    Useful Life 8 years Cost of capital is 6%

    Equipment (308,000) * Now*1.000= (308000)
    Working Capital (50,000)*Now*1.000=(50000)
    Annual $ inflow 55,000*6.210-=341550
    Salvage value 60,000*.627= 37620
    Cash repair at end of 5 years (70,000*.747)=(52290)

    Answer: (31120) --but this is not the correct answere. Where did I go wrong?
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    Oct 12, 2009, 10:15 AM
    If the equipment requires tying up working capital at the outset, to the tune of 50K, then it's usually assumed there'll be a release of this working capital investment at the end of the equipment's life.

    Thus you need one more cash flow--an inflow of 50K at the terminal point (end of year 8). Give that a spin and see how you do.
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