Net Present Value

For discount factors use Exhibit $12$B$-1$ and Exhibit $12$B$-2.$

Tatsumi Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of $$4,050,000.$ Producing the printer requires an investment in new equipment costing $$4,320,000.$ The printer has a projected life cycle of $5$ years. After $5$ years, the equipment can be sold for $$540,000.$ Working capital is also expected to decrease by $$540,000,$ which Tatsumi will recover by the end of the new product's life cycle. Annual cash operating expenses are estimated at $$2,430,000.$ The required rate of return is $8\%.$

Required:

$1.$ Prepare a schedule of the projected annual cash flows.

Year Item Cash Flow

$0$

Equipment

$fill in the blank $2$

$4,320,000$

$0$

Working capital

fill in the blank $4$

$540,000$

$0$ Total $fill in the blank $5$

$4,860,000$

$14$

Revenues

$fill in the blank $7$

$4,050,000$

$14$

Operating expenses

fill in the blank $9$

$2,430,000$

$14$ Total $fill in the blank $10$

$1,620,000$

$5$

Revenues

$fill in the blank $12$

$4,050,000$

$5$

Operating expenses

fill in the blank $14$

$2,430,000$

$5$

Salvage

fill in the blank $16$

$540,000$

$5$

Recovery of working capital

fill in the blank $18$

$540,000$

$5$ Total $fill in the blank $19$

$2,700,000$

$2.$ Calculate the NPV using only discount factors from Exhibit $12$B$\mathrm{.}1$

fill in the blank $1$ of $1$$

$3.$ Calculate the NPV using discount factors from both Exhibits $12$B$\mathrm{.}1$ and $12$B$\mathrm{.}2$

fill in the blank $1$ of $1$$