The White Star Steamship Company is deciding on the financial feasibility of building a new trans-Atlantic liner “The Titanic.” In order to make the decision the following information has been supplied. Initial cost of ship $5.5 Million. Annual net cashflows over the expected 10-year life of the project are given below:
| Year | Net Cashflow ($M) |
|---|---|
| 0 | 5.5 |
| 1 | 1.1 |
| 2 | 0.6 |
| 3 | 0.8 |
| 4 | 0.8 |
| 5 | 0.4 |
| 6 | 0.6 |
| 7 | 1.0 |
| 8 | 0.8 |
| 9 | 1.2 |
| 10 | 0.9 |
In Year 10 after the final voyage, it is anticipated that the ship will be sold to another line for 2.0 million (not included in the above cashflows).
Calculate the NPV of the project using a cost of capital (discount rate) of 15% and the payback period.
Gateway Communications is considering a project with an initial fixed assets cost of $1.58 million that will be depreciated straight-line to a zero book value over the 9-year life of the project. At the end of the project, the equipment will be sold for an estimated $237,000. The project will not change sales but will reduce operating costs by $393,000 per year. The tax rate is 23 percent and the required return is 11.2 percent. The project will require $50,500 in net working capital, which will be recouped when the project ends. What is the project’s NPV?
A) $328,646
B) $343,584
C) $402,634
D) $374,660
E) $389,646
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