# Net Present Value and Salvage Value

For the questions below, I need to know

i) When to multiply the net cash flows by the present value. For example do I do 160000*0.8929 and then 130000*0.7972 and so on, or do I multiply the net values only by 160000?

ii) Do I multiply the salvage value of 45000* by the fifth year of the present value, add it to the total net present value and then subtract my answer to 360000 to get the present value?

Questions:

Atlantic Company is considering investing in specialized equipment costing $360,000. The equipment has a useful life of 5 years and a residual value of $45,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are:

Year 1 | $160,000

Year 2 | 130,000

Year 3 | 100,000

Year 4 | 55,000

Year 5 | 40,000

Total: $485,000

Atlantic Company's required rate of return is 12%.

1. Calculate the net present value of the investment. Show how you arrived at your answer.

2. Does the net present value that you calculated indicate a return equal to, higher than, or lower than 12%?

A) Equal to 12%

B) Higher than 12%

C) Lower than 12%

D) Cannot be determined from the given data

https://brainmass.com/business/net-present-value/net-present-value-and-salvage-value-514611

#### Solution Preview

1) You have to do the net cash flows by present value. This will be: 160000*.8929 ...