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