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The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process: Net After-Tax Cash Flows Year
The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process:
Net After-Tax Cash Flows | |||
Year | P = 0.2 | P = 0.6 | P = 0.2 |
0 | $100,000 | $100,000 | $100,000 |
1 | 20,000 | 30,000 | 40,000 |
2 | 20,000 | 30,000 | 40,000 |
3 | 20,000 | 30,000 | 40,000 |
4 | 20,000 | 30,000 | 40,000 |
5 | 20,000 | 30,000 | 40,000 |
5* | 0 | 20,000 | 30,000 |
Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porters cost of capital for an average-risk project is 13%. Find the projects expected NPV.
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