Net Present Value

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

Talmage Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of $2,700,000. Producing the printer requires an investment in new equipment costing $2,880,000. The printer has a projected life cycle of 5 years. After 5 years, the equipment can be sold for $360,000. Working capital is also expected to decrease by $360,000, which Talmage will recover by the end of the new products life cycle. Annual cash operating expenses are estimated at $1,620,000. The required rate of return is 8%. Prepare a schedule of the projected annual cash flows.

Year		Item		Cash Flow
0		Equipment		$2880000
		Working capital		360000
		Total		$3240000
14		Revenues		$2700000
		Operating expenses		1620000
		Total		$1080000
5		Revenues		$1700000
		Operating expenses		1620000
		Salvage		360000
		Recovery of working capital		360000
		Total		$1800000

2. Calculate the NPV using only discount factors from Exhibit 12B.1 $

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