Carson trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $9,000,000 on new service equipment and would generate annual net cash inflows from reduced cost of operations equal costs of operating equal to $4,000,000 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 $5,000,000. Calculate the project’s NPV using a discount rate of 10 percent. If the discount rate is 10 percent, then the project’s NPV is Round to the nearest dollar
Carson trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $9,000,000 on new service equipment and would generate annual net cash inflows from reduced cost of operations equal costs of operating equal to $4,000,000 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 $5,000,000. Calculate the project’s NPV using a discount rate of 10 percent. If the discount rate is 10 percent, then the project’s NPV is Round to the nearest dollar
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 14P
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Carson trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $9,000,000 on new service equipment and would generate annual net cash inflows from reduced cost of operations equal costs of operating equal to $4,000,000 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 $5,000,000. Calculate the project’s NPV using a discount rate of 10 percent.
If the discount rate is 10 percent, then the project’s NPV is
Round to the nearest dollar
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