Question

​(Net present value​ calculation)  Carson Trucking is considering whether to expand its regional service center in​ Mohab, UT. The expansion requires the expenditure of ​$10 500 000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to ​$3 500 000 per year for each of the next 7 years. In year 7 the firm will also get back a cash flow equal to the salvage value of the​ equipment, which is valued at ​$1 million. ​ Thus, in year 7 the investment cash inflow totals ​$4 500 000. Calculate the​ project's NPV using a discount rate of 8 percent.

Answer 1

Discount rate	8.000%
Year	0	1	2	3	4	5	6	7
Cash flow stream	-10500000	3500000	3500000	3500000	3500000	3500000	3500000	4500000
Discounting factor	1.000	1.080	1.166	1.260	1.360	1.469	1.587	1.714
Discounted cash flows project	-10500000.000	3240740.741	3000685.871	2778412.844	2572604.485	2382041.190	2205593.694	2625706.779
NPV = Sum of discounted cash flows
NPV 0 =	8305785.60
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor