A project will produce operating cash flows of $39,000 a year for 4 years.During the life of the project,inventory will be lowered by $9,000,accounts receivable will increase by $14,000,and accounts payable will increase by $11,000.The project requires $118,000 of new equipment that will be depreciated straight-line to a zero book value over 4 years.At the end of the project,net working capital will return to its normal level and the equipment will be sold for $21,000,aftertaxes.What is the net present value given a required return of 13 percent?

Question

Quizplus · Accepted Answer

NWC requirement = $9,000 − $14,000 + $11,000 = $6,000 CF₀ = $6,000 − $118,000 = −$112,000 C0₄,_excluding _OCF = −$6,000 + $21,000 = $15,000 NPV = −$112,000 + $39,000[(1 − 1 / 1.13⁴)/ 0.13] + $15,000 / 1.13⁴ = $13,204.16

A Project Will Produce Operating Cash Flows of $39,000 a Year