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Net Present Value For discount factors use Exhibit 12B-1 and Exhibit 12B-2. Talmage Inc. has...

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Accounting

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 $

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