Topic: You have been hired to evaluate a capital investment proposal for a local oil company. Please calculate the NPV for the following project proposal:
$400,000 initial cost for equipment
$25,000 per year additional incremental annual cash revenues for 3 years
$5,000 per year additional incremental annual cash expenses for first 2 years
Project ends at the end of year 3
Minimum required return of 12%
Assume taxes are irrelevant
The project managers have already spent $50,000 on preliminary design and architectural expenses.
Should the project be accepted or rejected?
To earn the most points, show your calculations for computing the NPV.
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