The company is considering a project involving the purchase of new equipment.
Cost of equipment needed $322,000
Working capital needed $135,000
Overhaul of equipment in 5 years $20,000
Salvage value of the equipment in 8 years $30,000
Annual revenues and costs: Sales revenues $400,000
Cost of goods sold $235,000
Out-of-pocket operating costs $90,000
a. What is the net present value of the project? (Negative amounts should be indicated by a minus sign. Round all other intermediate calculations to the nearest whole dollar.)
Net present value b. The internal rate of return is between what two whole discount rates (e.g., between 10% and 11%)
The internal rate of return is between and c. Reset the discount rate to 12%. Suppose the salvage value is uncertain. How large would the salvage value have to be to result in a positive present value?
Minimum salvage value required to generate a positive present value