(Ignore income taxes in this problem. )The following data on a proposed investment project have been provided: 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

(Ignore income taxes in this problem. )The following data on a proposed investment project have been provided:  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 net present value (NPV), we need to discount the cash flows of the project to their present value using the given discount rate of 9%.

Year 0: Initial investment = -$320,000
Year 1: Cash inflow = $100,000/(1+9%) = $91,743
Year 2: Cash inflow = $120,000/(1+9%)^2 = $97,009
Year 3: Cash inflow = $150,000/(1+9%)^3 = $106,218
Year 4: Cash inflow = $200,000/(1+9%)^4 = $114,471
Year 5: Cash inflow = $300,000/(1+9%)^5 = $140,854
Working capital recovery = $50,000/(1+9%)^5 = $30,819

Calculate the sum of discounted cash inflows and subtract the discounted initial investment and working capital recovery:

NPV = $91,743 + $97,009 + $106,218 + $114,471 + $140,854 - $320,000 - $30,819 = $3,730

Therefore, the best choice is A) $3,730, as it has the highest NPV among the options provided.

(Ignore Income Taxes in This Problem