Business Finance Homework Help

Chapter Question

Topic: You have been hired to evaluate a capital investment proposal for a local oil company. Please calculate the NPV for the following project proposal:

$400,000 initial cost for equipment

$25,000 per year additional incremental annual cash revenues for 3 years

$5,000 per year additional incremental annual cash expenses for first 2 years

Project ends at the end of year 3

Minimum required return of 12%

Assume taxes are irrelevant

The project managers have already spent $50,000 on preliminary design and architectural expenses.

Should the project be accepted or rejected?

Show your calculations for computing the NPV.