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Lugar Industries is considering an investment in a proposed project which requires an initial expenditure of $100,000 at t = 0. This expenditure can be depreciated at the following annual rates:

Year Depreciation Rate
1 20%
2 32
3 19
4 12
5 11
6 6

The project has an economic life of six years. The project's revenues are forecasted to be $90,000 a year. The project's operating costs (not including depreciation) are forecasted to be $50,000 a year. After six years, the project's estimated salvage value is $10,000. The company's WACC is 10 percent, and its corporate tax rate is 40 percent. What is the project's net present value (NPV)?

a. $31,684
b. $33,843
c. $34,667
d. $38,840
e. $45,453

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Solution Summary

The solution explains how to calculate the NPV of a project in detailed steps found in an Excel file.

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