Net Present Value For discount factors use Exhibit 12B-1 and Exhibit 12B-2. Talmage Inc. has...
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Accounting
Net Present Value
For discount factors use Exhibit 12B-1 and Exhibit 12B-2.
Talmage Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of $2,700,000. Producing the printer requires an investment in new equipment costing $2,880,000. The printer has a projected life cycle of 5 years. After 5 years, the equipment can be sold for $360,000. Working capital is also expected to decrease by $360,000, which Talmage will recover by the end of the new products life cycle. Annual cash operating expenses are estimated at $1,620,000. The required rate of return is 8%.Prepare a schedule of the projected annual cash flows.
Year
Item
Cash Flow
0
Equipment
$2880000
Working capital
360000
Total
$3240000
14
Revenues
$2700000
Operating expenses
1620000
Total
$1080000
5
Revenues
$1700000
Operating expenses
1620000
Salvage
360000
Recovery of working capital
360000
Total
$1800000
2. Calculate the NPV using only discount factors from Exhibit 12B.1 $
3. Calculate the NPV using discount factors from both Exhibits 12B.1 and 12B.2 $
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