Problem:

Campbell's Coffee Shop is trying to analyze a project that requires a $135,000 investment in fixed assets. When the project ends, those assets are expected to have an after-tax salvage value of $35,000.

Requirement:

Question: How should Campbell handle the $35,000 salvage value when computing the net present value of the project?

• Do not include in the net present value computation
• Reduce the cash outflow at time zero
• Add to cash inflow in the final year of the project
• Add to cash inflow in the year following the final year of the project
• Prorate and add to cash inflow over the life of the project

Note: Please explain comprehensively and give step by step solution.