You work for a consulting firm and have been asked to help your firms client regarding their plans for their next major project. The project is a significant step for your client in that the project will generate cash inflows into the client for many years into the future. However, there will be a large investment of funds required by the client to launch the project. The planning is in its preliminary stages where the numbers and other data are estimates.

The following is some of the estimated data you have:

You client can borrow funds from your bank at 5%.

The cost to install the required equipment will be $95,000 and this cost is incurred prior to any cash is received by the project.

The expected cash inflows that the client expects to receive is $20,000 annually for 8 years.

After 8 years the equipment will stop working and can be sold for its parts for about $5,000.

You assume a 7% discount rate on this project.

You take these estimates and agree to start analyzing the feasibility of the project. The first step is to perform net present value (NPV) calculations for the project using your clients estimates.

Perform the NPV calculations and provide a brief narrative of how you calculated both computations and why. Then provide a summary conclusion on whether you should continue to pursue this business opportunity.