Carson Trucking is considering whether to expand its regional service center in​ Mohab, UT. The expansion requires the expenditure of ​$9000000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to ​$3500000 per year for each of the next 9 years. In year 9 the firm will also get back a cash flow equal to the salvage value of the​ equipment, which is valued at ​$1.2 million. ​ Thus, in year 9 the investment cash inflow totals ​$4700000. Calculate the​ project's NPV using a discount rate of 7 percent.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section10.A: Mutually Exclusive Investments Having Unequal Lives
Problem 2P
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Carson Trucking is considering whether to expand its regional service center in​ Mohab, UT. The expansion requires the expenditure of ​$9000000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to ​$3500000 per year for each of the next 9 years. In year 9 the firm will also get back a cash flow equal to the salvage value of the​ equipment, which is valued at ​$1.2 million. ​ Thus, in year 9 the investment cash inflow totals ​$4700000. Calculate the​ project's NPV using a discount rate of 7 percent.

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