Carson Trucking is considering whether to expand its regional service center in​ Mohab, UT.  The expansion requires the expenditure of ​$10 comma 500 comma 000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to ​$2 comma 000 comma 000 per year for each of the next 6 years.  In year 6 the firm will also get back a cash flow equal to the salvage value of the​ equipment, which is valued at ​$0.8 million. ​ Thus, in year 6 the investment cash inflow totals ​$2 comma 800 comma 000.  Calculate the​ project's NPV using a discount rate of 10 percent.

To calculate the Net Present Value (NPV) of the project, we need to follow these steps:

1. **Identify Cash Flows:**
   - Initial Investment (Year 0): -$10,500,000
   - Annual Cash Inflows (Years 1-5): $2,000,000 each year
   - Cash Inflow in Year 6: $2,800,000 (including $2,000,000 + $800,000 salvage value)

2. **Discount Rate:**
   - 10% (0.10)

3. **Formula for NPV:**

\[
NPV = \sum_{t=0}^{n} \frac{CF_t}{(1 + r)^t}
\]

Where:
- $ CF_t $ is the cash flow at time $ t $.
- $ r $ is the discount rate (10% or 0.10).
- $ t $ is the time period.

4. **Calculation:**

Let's calculate the NPV using the formula above.

\[
NPV = \frac{-10,500,000}{(1 + 0.10)^0} + \frac{2,000,000}{(1 + 0.10)^1} + \frac{2,000,000}{(1 + 0.10)^2} + \frac{2,000,000}{(1 + 0.10)^3} + \frac{2,000,000}{(1 + 0.10)^4} + \frac{2,000,000}{(1 + 0.10)^5} + \frac{2,800,000}{(1 + 0.10)^6}
\]

Let's compute this value.The Net Present Value (NPV) of the project is approximately **-$1,337,899.46**. This negative NPV suggests that the project would not be financially viable given the 10% discount rate.

Do you want details on any specific aspect or have further questions? Here are some related questions to consider:

1. What is the significance of a negative NPV?
2. How would changing the discount rate affect the NPV?
3. What is the internal rate of return (IRR) for this project?
4. What are other methods to evaluate the project besides NPV?
5. How does the salvage value impact the overall NPV?

**Tip:** When evaluating projects, compare the NPV against other projects to find the best investment opportunity.

Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $10,500,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $2,000,000 per year for each of the next 6 years. In year 6, the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $0.8 million. Thus, in year 6 the investment cash inflow totals $2,800,000. Calculate the project's NPV using a discount rate of 10 percent.

Calculate the Net Present Value (NPV) of Carson Trucking’s expansion project in Mohab, UT. This analysis involves discounting cash flows at a 10% rate over six years, including salvage value. Learn how investment decisions are evaluated using NPV.

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