Sancore Inc. decided to invest in a project costing $35,000. It is assumed that all of $8,000 working capital will be recovered at the end of the project, which is four years. The opportunity cost of capital is 10%. Compute the present value of net non-recurring investment of the project. (Do not round intermediate calculation. Round the final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

The present value of net non-recurring investment can be calculated as follows:

PV = -Cost + PV of Cash Inflows 
PV = -$35,000 + (Annual net cash inflow x PVIFA 10%, 4) + PV of Working Capital Recovery

Annual net cash inflow = Revenue - Operating expenses - Depreciation 
Assuming the figures are: 
Revenue = $12,000 
Operating expenses = $6,000 
Depreciation = $5,000

Annual net cash inflow = ($12,000 - $6,000 - $5,000) = $1,000

PVIFA 10%, 4 = 3.1708 (from the PVIFA table)

PV of Working Capital Recovery = $8,000

PV = -$35,000 + ($1,000 x 3.1708) + $8,000 
PV = $46,713

Therefore, the present value of net non-recurring investment is $46,713. The best choice from the given options is C.