How do I use the residual value when calculating the project鈥檚 NPV?

This is the question which I am working out:
Investment: $1.8 million on a new biscuit making machine in order to expand the company麓s market share.
The financial details are as follows:

Initial outlay : $1.8 million
Life : 10 years
Net cash flow : Years 1 to 6 +$500 000 per year
Years 7 to 10 + $300 000 per year
Residual value : $0.5 million

The company uses straight-line depreciation and has a target rate of returns, both ARR and NPV, of 18%, and a payback criterion of 5 years.

My questions are:
1- What discont rate should I take to find the present value of the cash flows?

2- Do I need to add the residual value to the cash flows in oder to find the present value of the cashs flows? Or do I need the residual value for the calculation of the machine's depreciations?

Please I want to find the right answer for this question but can t make because of the residual value and not sure if the discount rate is 18%.

Residual value is just your FV.
PV is your 1.8 mil
Discount rate shld be 18%

Yes you need residual value to compute depreciation cos Depreciation = (Cost - Residual value) / Useful life

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