Question
Floyd Clymer is the CFO of Bonavista Mustang, a manufacturer of parts for classic automobiles. Floyd is considering the purchase of a two-ton press which
Floyd Clymer is the CFO of Bonavista Mustang, a manufacturer of parts for classic automobiles.
Floyd is considering the purchase of a two-ton press which will allow the firm to stamp out auto
fenders. The equipment costs $250,000. The project is expected to produce after-tax cash flows of
$60,000 the first year, and increase by $10,000 annually; the after-tax cash flow in year 5 will reach
$100,000. Liquidation of the equipment will net the firm $10,000 in cash at the end of five years,
making the total cash flow in year five $110,000. Assume the required return is 15%. what is the projects net present value?
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