Problem:

Bruno's Lunch Counter is expanding and expects operating cash flows of $26,000 a year for 4 years as a result. This expansion requires $39,000 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires $3,000 of net working capital throughout the life of the project.

Required:

What is the net present value of this expansion project at a required rate of return of 16 percent?

• $18,477.29
• $21,033.33
• $28,288.70
• $29,416.08
• $32,409.57

Note: Provide support for your rationale.