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.