Exam – Determining the NPV of a Project with Depreciation and Salvage Value

Fundamentals of Financial Management, Concise

Brigham and Houston

09th Edition, 10th Edition, and 11th Edition

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Calculate the net present value (NPV) of a project that involves purchasing new equipment with a 3-year tax life. The equipment will be fully depreciated over 3 years using the straight-line method and will have a positive pre-tax salvage value at the end of Year 3. Additionally, new working capital is required but will be recovered at the end of the project's life. The project's revenues and operating costs are expected to remain constant over the 3-year period. Determine the project's NPV.

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