Net working capital is expected to increase by $25,000 over the 5-year life of a project. What is the effect of net working capital on the project's net present value if the cost of capital is 15%?
A) NPV will not be affected because the $25,000 will all be recouped.
B) NPV will increase by $12,429.42.
C) NPV will decrease by $25,000.
D)NPV will decrease by $12,570.58.

Question

Quizplus · Accepted Answer

CF₀ = - $25,000CF₅ = ($25,000/1.15⁵) = $12,429.42ΔNPV = -$25,000 + 12,429.42 = $12,570.58

Net Working Capital Is Expected to Increase by $25,000 Over