What is the net present value of the project

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Reference no: EM132033151

Fairfax Paint is evaluating a 2-year project that would involve buying equipment for 330,000 dollars that would be depreciated to 20,000 dollars over 2 years using straight-line depreciation. Cash flows from capital spending would be 0 dollars in year 1 and 34,000 dollars in year 2. To finance the project, Fairfax Paint would borrow 330,000 dollars. The firm would receive 330,000 dollars from the bank today and would pay the bank $0 in 1 year and 351,615 dollars in 2 years (consisting of an interest payment of 21,615 dollars and a principal payment of 330,000 dollars). Relevant annual revenues are expected to be 247,000 dollars in year 1 and 278,000 dollars in year 2. Relevant annual costs are expected to be 107,000 dollars in year 1 and 74,000 dollars in year 2. The tax rate is 50 percent. The cost of capital is 5.5 percent and the interest rate on the loan would be 3.22 percent. What is the net present value of the project?

Reference no: EM132033151

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