More details have emerged and your estimates are becoming more precise.

The following are the new values to the data that you have been estimating up to this point:

You can borrow funds from your bank at 3%.

The cost to install the needed equipment will be $105,000 and this cost is incurred prior to any cash is received by the project.

The gross revenues from the project will be $25,000 for year 1, then $27,000 for years 2 - 4. Year 5 will be $23,000.

The expected annual cash outflows (current project costs) are estimated at being $13,000 for the first year, then $12,000 for years 2, 3, and 4. The final year costs will be $10,000.

After 5 years the equipment will stop working and will be worthless.

The discount rate you are assuming continues to be 6%.

* we need to calculate the NPV ?

* how the interest expenses is calculated ? simple or compound interest and why.

* Why the principle loan payment is not considered in the capital budgeting ?