What is the net present value of project

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Reference no: EM131548973

Fairfax Paint is evaluating a 2-year project that would involve buying equipment for 180,000 dollars that would be depreciated to 10,000 dollars over 2 years using straight-line depreciation. Cash flows from capital spending would be 0 dollars in year 1 and 19,000 dollars in year 2. To finance the project, Fairfax Paint would borrow 180,000 dollars. The firm would receive 180,000 dollars from the bank today and would pay the bank $0 in 1 year and 187,200 dollars in 2 years (consisting of an interest payment of 7,200 dollars and a principal payment of 180,000 dollars). Relevant annual revenues are expected to be 140,000 dollars in year 1 and 162,000 dollars in year 2. Relevant annual costs are expected to be 58,000 dollars in year 1 and 57,000 dollars in year 2. The tax rate is 50 percent. The cost of capital is 7.81 percent and the interest rate on the loan would be 2 percent. What is the net present value of the project?

Reference no: EM131548973

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