garden-grow products is considering a new investment whose data are shown below. the equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require some additional working capital that would be recovered at the end of the project's life. revenues and other operating costs are expected to be constant over the project's life. what is the project's npv? (hint: cash flows are constant in years 1 to 3.) project cost of capital (r) 10.0% net investment in fixed assets (basis) $75,000 required new working capital $15,000 straight-line deprec. rate 33.333% sales revenues, each year $75,000 operating costs (excl. deprec.), each year $25,000 tax rate 25.0%

Net present value( NPV) refers to the difference between the value of cash now and the value of cash at a future date. NPV in project operation is used to determine whether the expected fiscal earnings of a project will overweigh the present- day investment — meaning the project is a worthwhile undertaking.The net present value or net current worth applies to a series of cash overflows happening at other times. The present value of a cash inflow depends on the interval of time between now and the cash inflow. It also depends on the reduction rate. NPV accounts for the time valuation of money.

Evaluating projected npv :

Depreciation per year = 75000/3

= 25000

Cash flow in year 0 = -75000-15000

= -90000

Profit before tax = sales - operating cost - depreciation

= 75000-25000-25000

= 25000

Tax = 35% × 25000

= 8750

Net income = 25000× (1-35%)

= 16,250

Cash flow in years 1 and 2 = net income + depreciation

= 16,250+25000

= 41,250

Cash flow in year 3 = 41,250 + 15000 (recovered from working capital)

= 56,250

NPV = -90000+41,250 ÷ 1.1¹ +41,250 ÷ 1.1² +56,250 ÷ 1.1³

= $23,852.37

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