Question
Donna was extremely cautions as she prepared her estimates of the cash inflows related to a new product line. The initial investment in depreciable assets
Donna was extremely cautions as she prepared her estimates of the cash inflows related to a new product line. The initial investment in depreciable assets is $51,000 today with no salvage value. This investment is expected to generate the following net cash inflows for each of the next 5 years, where the assets all have 5-year useful lives; $15,0000, $21,000, $30,000, $20,000, and $15,000, respectively. The company's required rate of return is 10%; its tax rate is 25%. a) Determine the NPV that Donna initially expected for this investment. b) By the end of year 3, the following cash flows had been received: $10,000 (year 1), $15,000 (year 2), and $33,000 (year 3). If the final 2 year's cash flows came in as expected, will the investment's NPV surpass expectations?
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