UMB Associates has been offered a five-year contract to supply the computing requirements for a local bank.

Cash Flow Information

Cost of computer equipment$ 350,000

Working capital required 30,000

Upgrading of equipment in 2 years 80,000

Salvage value of equipment in 5 years15,000

Annual net cash inflow 130,000

The working capital would be released at the end of the contract.

Denny Associates requires a 12% return.

What is the net present value of the contract with the local bank?

Please help below.

YEARS CASH FLOWS12% FACTORPRESENT VALUE

Investment in equipment

Working capital needed

Annual net cash inflows

Upgrading of equipment

Salvage value of equip.

Working capital released

Net present value