Answer:
a. What is the initial investment at t=0?
b. What is the Cash Flow at year 1?
c. What is the Cash Flow at year 3?
d. What is NPV?
Explanation:
initial investment $90,000
depreciation per year using straight line depreciation = $90,000 / 3 = $30,000
cash flow year 1 = [($40,000 - $5,000 - $30,000) x 0.79] + $30,000 = $33,950
cash flow year 2 = [($45,000 - $6,000 - $30,000) x 0.79] + $30,000 = $37,110
cash flow year 3 = [($50,000 - $7,000 - $30,000) x 0.79] + $30,000 = $40,270
using an excel spreadsheet I calculated the NPV = $1,788.50
