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Date Posted: 07:37:18 05/01/03 Thu
Author: Dr. D.
Subject: Re: Chapter 12, problem #8
In reply to: lhuynh4 's message, "Chapter 12, problem #8" on 23:02:05 04/30/03 Wed

>Can you work out the solution for the end of the
>chapter problem #8?
The initial cash flow (CF0) is -4,120,000. This represents the cost of the vessell and the increase in working capital.

The operating cash flow in years 1-9 will be $700,000. This represents the sum of the net income of $300,000 and the annual depreciation of $400,000.

The cash flow in year 10 is the sum of the operating cash flow of $700,000 and the reversal of the working capital of $120,000, or $820,000

Putting it all together, CF0=-4,120,000; C01=700,000 (F01=9); C02=820,000; IRR=11.26% and NPV@10%=$227,462

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