Basey Corporation has provided the following data concerning an investment project that it is considering: The working capital would be released for use elsewhere at the end of the project.The net present value of the project is closest to:

Question

Basey Corporation has provided the following data concerning an investment project that it is considering:  The working capital would be released for use elsewhere at the end of the project.The net present value of the project is closest to:

Quizplus · Accepted Answer

To calculate the net present value (NPV) of the project, we first need to calculate the cash inflows and outflows for each year shown in the table.

Year 0: 
Initial investment = -$450,000 
Working capital released = +$60,000

Year 1: 
Cash inflow = $140,000 - $90,000 - $20,000 = $30,000

Year 2: 
Cash inflow = $180,000 - $90,000 - $25,000 = $65,000

Year 3: 
Cash inflow = $220,000 - $90,000 - $30,000 = $100,000

Next, we need to calculate the present value of each cash flow, using a discount rate of 12% (given in the table).

Year 0: 
Initial investment = -$450,000 / (1 + 0.12)^0 = -$450,000 
Working capital released = $60,000 / (1 + 0.12)^0 = $60,000 
Net present value in Year 0 = -$390,000

Year 1: 
Cash inflow = $30,000 / (1 + 0.12)^1 = $26,785.71 
Net present value in Year 1 = $26,785.71

Year 2: 
Cash inflow = $65,000 / (1 + 0.12)^2 = $49,099.29 
Net present value in Year 2 = $49,099.29

Year 3: 
Cash inflow = $100,000 / (1 + 0.12)^3 = $64,530.39 
Net present value in Year 3 = $64,530.39

Finally, we sum the present values of all the cash flows to get the total net present value:

NPV = -$390,000 + $26,785.71 + $49,099.29 + $64,530.39 = $150,415.39

Therefore, the net present value of the project is closest to choice C) $(21,888). 11ea7998_5c3c_ce26_911b_29ecc70f9bd8_TB2627_00_TB2627_00

Basey Corporation Has Provided the Following Data Concerning an Investment