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Compute the NPV, IRR, and payback period

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Investment criteria) Compute the NPV, IRR, and payback period for the following investment.
The cost of capital is 10%.

Year 0 1 2 3
Cash flow - 200,000 100,000 100,000 150,000


(Cash flows and NPV for a new project) Syracuse Roadbuilding Company is considering
the purchase of a new tandem box dump truck. The truck costs $95,000, and an additional
$5,000 is needed to paint it with the firm logo and install radio equipment. Assume the
truck falls into the MACRS three-year class. The truck will generate no additional revenues,
but it will reduce cash operating expenses by $35,000 per year. The truck will be
sold for $40,000 after its five-year life. An inventory investment of $4,000 is required during
the life of the investment. Syracuse Roadbuilding is in the 45% income tax bracket.
a. What is the net investment?
b. What is the after-tax net operating cash flow for each of the five years?
c. What is the after-tax salvage value?
d. Assuming a 10% cost of capital, what is the NPV of this investment?

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Solution Summary

The solution computes the NPV, IRR, and payback period.