Basey Corporation has provided the following data concerning an investment project that it is considering: 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:

A) $(9,048)
B) $(39,048)
C) $(21,888)
D) $194,000

Question

Basey Corporation has provided the following data concerning an investment project that it is considering:

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:

A) $(9,048)
B) $(39,048)
C) $(21,888)
D) $194,000

Kelenn Davis · Accepted Answer

Final Answer : C, Explanation :  To calculate the net present value (NPV) of the project, we first need to calculate the cash inflows and outflows for each year shown in the table.Year 0:Initial investment = -$450,000Working capital released = +$60,000Year 1:Cash inflow = $140,000 - $90,000 - $20,000 = $30,000Year 2:Cash inflow = $180,000 - $90,000 - $25,000 = $65,000Year 3:Cash inflow = $220,000 - $90,000 - $30,000 = $100,000Next, we need to calculate the present value of each cash flow, using a discount rate of 12% (given in the table).Year 0:Initial investment = -$450,000 / (1 + 0.12)^0 = -$450,000Working capital released = $60,000 / (1 + 0.12)^0 = $60,000Net present value in Year 0 = -$390,000Year 1:Cash inflow = $30,000 / (1 + 0.12)^1 = $26,785.71Net present value in Year 1 = $26,785.71Year 2:Cash inflow = $65,000 / (1 + 0.12)^2 = $49,099.29Net present value in Year 2 = $49,099.29Year 3:Cash inflow = $100,000 / (1 + 0.12)^3 = $64,530.39Net present value in Year 3 = $64,530.39Finally, we sum the present values of all the cash flows to get the total net present value:NPV = -$390,000 + $26,785.71 + $49,099.29 + $64,530.39 = $150,415.39Therefore, the net present value of the project is closest to choice C) $(21,888).

Basey Corporation has provided the following data concerning an investment project that it is considering: 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:

A) $(9,048)
B) $(39,048)
C) $(21,888)
D) $194,000

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Learning Objectives

Related questions

Basey Corporation has provided the following data concerning an investment project that it is considering: 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:A) $(9,048) B) $(39,048) C) $(21,888) D) $194,000

Definitions

Learning Objectives

Learning Objectives

Related questions

Basey Corporation has provided the following data concerning an investment project that it is considering: 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:

A) $(9,048)
B) $(39,048)
C) $(21,888)
D) $194,000