Bradley Company's required rate of return is 14%. The company has an opportunity to be the exclusive distributor of a very popular consumer item. No new equipment would be needed, but the company would have to use one-fourth of the space in a warehouse it owns. The warehouse cost $200,000 new. The warehouse is currently half-empty, and there are no other plans to use the empty space. In addition, the company would have to invest $100,000 in working capital to carry inventories and accounts receivable for the new product line. The company would have the distributorship for only five years. The distributorship would generate a $17,000 net annual cash inflow. (Ignore income taxes in this problem.)

Required:

What is the net present value of the project at a discount rate of 14%? Should the project be accepted?

Question

Required:

What is the net present value of the project at a discount rate of 14%? Should the project be accepted?

Quizplus · Accepted Answer

The Answer of Bradley Company's required rate of return is 14%. The company has an opportunity to be the exclusive distributor of a very popular consumer item. No new equipment would be needed, but the company would have to use one-fourth of the space in a warehouse it owns. The warehouse cost $200,000 new. The warehouse is currently half-empty, and there are no other plans to use the empty space. In addition, the company would have to invest $100,000 in working capital to carry inventories and accounts receivable for the new product line. The company would have the distributorship for only five years. The distributorship would generate a $17,000 net annual cash inflow. (Ignore income taxes in this problem.)

Required:

What is the net present value of the project at a discount rate of 14%? Should the project be accepted?

Bradley Company's Required Rate of Return Is 14