Sherry Bishop of Thayer Industries is considering investing in a capital project that costs $1.2 million. The project is expected to generate after-tax operating cash flows equal to $500,000 in the first year and declining by $100,000 per year until the end of the project's life in five years. Assume that Thayer's nominal discount rate for this project is 12% and that the annual inflation rate is 3%.
(A) Calculate the project's NPV, assuming that the project's cash flow are given in nominal terms. Would you accept this project?
(B) Calculate the real values of future cash flows.
(C) Recalculate the project's NPV, using the real cash flows and the appropriate real discount rate. Does your accept-reject decision change from your answer in part (A)?
This solution would help to find out real value of future cash flow, inflation and real discount rate. All workings can be seen in an Excel file.
What is the NPV for Real Time Inc.?
Please provide detailed answer in MS Excel file and text file
Given the information in the attachment, what is the NPV?
The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent.View Full Posting Details