Doubt Regarding Treatment Of Scrap Value in NPV Calculation

Bacher Co is considering investing $500,000 in equipment to produce a new type of ball. Sales of the product are expected to continue for three years, at the end of which the equipment will have a scrap value of $80,000. Sales revenue of $600,000 per year will be generated at a variable cost of $350,000. Annual fixed costs will increase by $40,000 (a) Determine whether, on the basis of the estimates given, the project should be undertaken, assuming that all cash flows occur at annual intervals and that Bacher Co has a cost of capital of 15%.: Solution:NPV calculation Time Cash flow 15% DF PV $000 $000 0 Equipment (500) 1 (500) 1–3 Revenue 600 2.283 1,370 1–3 Variable costs (350) 2.283 (799) 1–3 Fixed costs (40) 2.283 (91) 3 Scrap value 80 0.658 53 –––– NPV 33 –––– When Scrap Value is given, but no sale is mentioned, Is it a rule to take it as cash inflow?