Floyd Clymer Is the CFO of Bonavista Mustang, a Manufacturer

Multiple Choice

Floyd Clymer is the CFO of Bonavista Mustang, a manufacturer of parts for classic automobiles. Floyd is considering the purchase of a two-ton press which will allow the firm to stamp out auto fenders. The equipment costs $250,000. The project is expected to produce after-tax cash flows of $60,000 the first year, and increase by $10,000 annually; the after-tax cash flow in year 5 will reach $100,000. Liquidation of the equipment will net the firm $10,000 in cash at the end of five years, making the total cash flow in year five $110,000.

Assume the required return is 15%. What is the project's net present value?

A) ($4,950)
B) $12,001
C) $12,623
D) $13,853
E) $15,226