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April 25, 2014

Homework Help: Finance

Posted by EMJ on Saturday, December 17, 2011 at 7:39pm.

(Inflation) A projectís initial investment is $40,000, and it has a five-year life. At the end of the fifth year, the equipment is expected to be sold for $12,000, at which time its net book value will be $5,000. The CFATs (including inflation, depreciation, and net salvage value) for the next five years are expected to be $20,000, $25,000, $10,000, $10,000, and $10,000. In real terms, the projectís cost of capital is 10%, and the riskless return is 7%. The tax rate is 46%, and the inflation rate is 3%. What is the projectís NPV?

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