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

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