Darnell Limited has capital project opportunities each of which would require an initial investment of $250,000. Details for each opportunity are shown below: Investment 1 Investment 2 Investment in robotic equipment $ 250,000 Investment in working capital $ 250,000 Net annual cash inflows $ 40,000 $ 40,000 Life of the project 15 Years 15 Years CCA 20 % The robotic equipment would have a salvage value of $25,000 in 15 years. The equipment would be depreciated over 15 years. At the end of 15 years, the investment in working capital would be released for use elsewhere. The company requires an after-tax return of 10% on all investments. The tax rate is 30%. Required:Compute the net present value of each investment project. (Hint: Use Microsoft Excel to calculate the discount factor(s).) (Do not round intermediate calculations. Round your PV factor to 3 decimal places and round the final answers to the nearest whole dollar.)
Darnell Limited has capital project opportunities each of which would require an initial investment of $250,000. Details for each opportunity are shown below:
| Investment 1 | Investment 2 | |||||
| Investment in robotic equipment | $ | 250,000 | ||||
| Investment in working capital | $ | 250,000 | ||||
| Net annual |
$ | 40,000 | $ | 40,000 | ||
| Life of the project | 15 | Years | 15 | Years | ||
| CCA | 20 | % | ||||
The robotic equipment would have a salvage value of $25,000 in 15 years. The equipment would be
Required:
Compute the
Net Present Value is a capital budgeting technique which helps in the evaluation of an investment proposal by comparing a proposal's inflows with their outflows. This method helps in the decision making of the firm by comparing their benefits with the costs. This method is most reliable measure of evaluating a proposal. Net Present Value is the difference between the present value of inflows and outflow.
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