G-III Apparel is considering increasing the size of a warehouse. The cost of the expansion is $825,000, and the increase in inventories and accounts payable will be $410,000 and $360,000, respectively. G-III expects that the expansion will increase net cash flows by $150,000 a year for the next 5 years and $200,000 a year for years 6-12. G-III has a 14% cost of capital and a marginal tax rate of 35%. What is the NPV of the warehouse expansion?
A) -$3,450
B) $60,050
C) $10,050
D) -$338,570

Question

Quizplus · Accepted Answer

The NPV is calculated by discounting the net cash flows at the cost of capital and subtracting the initial investment and changes in working capital. The correct NPV is $10,050.

G-III Apparel Is Considering Increasing the Size of a Warehouse