- A project has an initial cost of $40,000, expected net cash inflows of $12,000 per year for 6 years, and a cost of capital of 13%. What is the project’s NPV? (Hint: Begin by constructing a timeline.) Do not round intermediate calculations. Round your answer to the nearest cent.
- Assume you are now 21 years old. You plan to start saving for your retirement on your 25th birthday and retire on your 65th birthday. After retirement, you expect to live at least until you are 85. You wish to be able to withdraw $54,000 every year from the time of your retirement until you are 85 years old (i.e., for 20 years). The average inflation rate is likely to be 5 percent.
Calculate the lump sump you need to have accumulated at age 65 to be able to draw the desired income. Assume that the annual return on your investments is likely to be 10%.
- Consider the purchase of a machine for automation of an important process that would cost $210,000. The machine is estimated to have a 5-year useful life and a salvage value at the end of the five years of $48,000. The machine would reduce labor costs by $62,000 per year. Additional working capital of $7,000 would be needed immediately, all of which would be recovered at the end of 5 years. The minimum required return is 17% on all investment projects.
Determine the NPV of the project.
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