## Question

###### (Net present value calculation) Carson Trucking is considering whether to expand its regional service center in...

(Net present value calculation) Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $10 500 000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $3 500 000 per year for each of the next 7 years. In year 7 the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1 million. Thus, in year 7 the investment cash inflow totals $4 500 000. Calculate the project's NPV using a discount rate of 8 percent.

## Answers

Discount rate 8.000% Year 0 1 2 3 4 5 6 7 Cash flow stream-10500000 3500000 3500000 3500000 3500000 3500000 3500000 4500000 Discounting factor 1.000 1.080 1.166 1.260 1.360 1.469 1.587 1.714 Discounted cash flows project -10500000.000 3240740.741 3000685.871 2778412.844 2572604.485 2382041.190 2205593.694 2625706.779 NPV = Sum of discounted cash flows NPV 0 = 8305785.60 Where Discounting factor = (1 + discount rate)^(Corresponding period in years) Discounted Cashflow= Cash flow stream/discounting factor

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