Calculate and interpret a simple NPV using discounted annual cash flows.
A packaging automation project costs $500K today and is expected to save $170K after tax at the end of each year for four years. The hurdle rate is 10%. NPV = present value of incremental cash inflows minus the initial investment. The common trap is to compare $680K of undiscounted savings with $500K of cost and call the project a $180K win. That ignores time value and overstates the value of later cash. Step 1 Initial investment = -$500K at time 0. The outflow happens today, so it is already in present-value dollars. Step 2 Annual after-tax savings = $170K…
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