Cost of equipment needed $410,000

Working capital needed $20,000

Overhaul of the equipment in four years $45,000

Salvage value of the equipment in five years $20,000

Annual revenues and costs:

Sales revenues $435,000

Cost of goods sold $260,000

Out-of-pocket operating costs (for salaries,advertising, and other direct costs) $65,000 $110,000

11% discount rate

YEAR Now 1 2 3 4 5

Purchase of equipment $(410,000)

Investment in working capital -20000

Sales $435,000 $435,000 $435,000 $435,000 $435,000 Cost of goods sold $(260,000) $(260,000) $(260,000) $(260,000) $(260,000)

Out-of-pocket costs for salaries, ads, etc $(65,000) $(65,000) $(65,000) $(65,000) $(65,000) Overhaul of equipment $(45,000)

Salvage value of the equipment $20,000

Working capital released $20,000

Total cash flows $(430,000) $110,000 $110,000 $110,000 $65,000 $150,000

Discount factor 1.000 0.901 0.812 0.731 0.659 0.593 PV TABLE Present value of cash flows $(430,000) $99,110 $89,320 $80,410 $42,835 $88,950

Net present value $(29,375) Note: The discount factors come from the table IRR 8.29%

Factor of the internal rate of return= Investment required $410,000 = 3.727 = 8 OR 9% rate of return

Annual net cash inflow $110,000

d. Reset the discount rate to 11% Suppose the salvage value is uncertain. How large the salvage value have to be to result in a positive net preesnt value? Minimum salvage valuerequired to generate a positive present value ?

I would like to know the Minimum salvage valuerequired to generate a positive present value, and how to compute it. Thank you