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Forise Water Company drills small commercial water wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below.           Initial investment:         Asset                                        $700,000         Working capital                          $188,000         Operations (per year for four years):         Cash receipts                            $530,000         Cash expenditures                     $240,000         Disinvestment:         Salvage value of drill (existing)   $120,000         Discount rate                                    18%   What is the net present value of the investment? Assume there is no recovery of working capital.

Forise Water Company drills small commercial water wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below.           Initial investment:         Asset                                        $700,000         Working capital                          $188,000         Operations (per year for four years):         Cash receipts                            $530,000         Cash expenditures                     $240,000         Disinvestment:         Salvage value of drill (existing)   $120,000         Discount rate                                    18%   What is the net present value of the investment? Assume there is no recovery of working capital.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Forise Water Company drills small commercial water wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below.

 

        Initial investment:

        Asset                                        $700,000

        Working capital                          $188,000

        Operations (per year for four years):

        Cash receipts                            $530,000

        Cash expenditures                     $240,000

        Disinvestment:

        Salvage value of drill (existing)   $120,000

        Discount rate                                    18%

 

What is the net present value of the investment? Assume there is no recovery of working capital.

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