1. Calculate the net present value of a project with a net investment of $20,000 for equipment and an additional net working capital investment of $5,000 at time 0.
The project is expected to generate net cash flows of $7,000 per year over a 10-year estimated economic life. In addition, the net working capital will be recovered at the end of the project.
The required return on the project is 11 per- cent and the company has a marginal tax rate of 40 percent. What is the meaning of the computed net present value figure?
2. Calculate the internal rate of return and profitability index for a project that is expected to generate eight years of annual net cash flows of $75,000. The project has a net investment of $360,000 and the required return on the project is 12 percent.