A Company is considering launching a new printed circuit board (PCB) production

Question

A Company is considering launching a new printed circuit board (PCB) production project that requires an initial investment of SR 10,000,000. The project is expected to provide uniform annual revenue of SR 3,000,000 for 8 years. Annual expenses arc estimated at SR 500,000 at the end of each year. If the project is expected to provide salvage value (recovery) of SR 500,000 and the interest rate is 10%. Draw the cash-flow diagram for this project marking clearly all components. What is the present equivalent for all investments, expenses and revenues?

Explanation / Answer

Annual cash flow = 3,000,000 - 500,000 = 2,500,000 i = 10% SV = F yr 8 = 500,000 P = -10,000,000 NPV = -10,000,000 + 2,500,000 (P/A,i=10%,N=8) + 500,000 (P/F,i=10%,N=8) NPV = -10,000,000 + 2,500,000 (5.3349) + 500,000 (0.4665) NPV = -10,000,000 + 13,337,250 + 233,250 NPV = 3,570,500

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