Consider a capital expenditure project that has forecasted revenues equal to $100,000 per year; cash expenses are estimated to be $45,000 per year. The cost of the project equipment is $320,000, and the equipment’s estimated salvage value at the end of the project is $20,000. The equipment’s $320,000 cost will be depreciated on a straight-line basis to $0 over a 10-year estimated economic life. Assume that the project requires an initial $10,000 working capital investment. The company can recover this working capital investment at the end of the project. The company’s marginal tax rate is 25%.
Calculate the project’s net present value using a 17% discount rate.