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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
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Phoniex University
Oct-2001 - Nov-2016
Cornerstone Exercise 14-23 Â Net Present Value
Holland Inc. has just completed development of a new cell phone. The new product is expected to produce annual revenues of $1,350,000. Producing the cell phone requires an investment in new equipment, costing $1,440,000. The cell phone has a projected life cycle of 5 years. After 5 years, the equipment can be sold for $180,000. Working capital is also expected to increase by
$180,000, which Holland will recover by the end of the new product’s life cycle. Annual cash operating expenses are estimated at $810,000. The required rate of return is 8%.
Required:
1.      Prepare a schedule of the projected annual cash flows.
2.      Calculate the NPV using only discount factors from Exhibit 14B.1 (p. 647).
3.      Calculate the NPV using discount factors from both Exhibit 14B.1 and 14B.2 (p. 648).
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