Reynolds Metals is considering a project with a life of 4 years that will produce annual operating cash flows of $57,000.During the life of the project,inventory will be lowered by $28,000,accounts receivable will increase by $15,000,and accounts payable will increase by $6,000.The project requires the purchase of equipment at an initial cost of $104,000 that will be depreciated straightline to a zero book value over the life of the project.Ignore bonus depreciation.The equipment will be salvaged at the end of the project creating an aftertax cash inflow of $22,000.At the end of the project,net working capital will return to its normal level.What is the net present value of this project given a required return of 16 percent?
A)$83,483.48
B)$78,117.05
C)$76,153.17
D)$80,037.86
E)$79,876.02

Question

Quizplus · Accepted Answer

The net present value (NPV) of the project can be calculated by considering the initial investment, the annual operating cash flows, the changes in net working capital, the salvage value of the equipment, and the depreciation of the equipment. The calculation involves determining the present value of all these cash flows at the required return rate of 16%. Given the information, the correct NPV calculation leads to the answer provided in option C.

Reynolds Metals Is Considering a Project with a Life of 4