Asked by
Brianna Valdez
on Oct 10, 2024
Verified
Kanzler Corporation is considering a capital budgeting project that would require an initial investment of $450,000 and working capital of $25,000.The working capital would be released for use elsewhere at the end of the project in 4 years.The investment would generate annual cash inflows of $143,000 for the life of the project.At the end of the project, equipment that had been used in the project could be sold for $10,000.The company's discount rate is 14%.The net present value of the project is closest to:
A) $(27,521)
B) $(37,721)
C) $(52,521)
D) $132,000
Working Capital
The difference between a company's current assets and current liabilities.
Net Present Value
A method of valuing a series of future cash flows by discounting them back to their present value using a specified rate of return.
- Understand thoroughly the concept and procedure for calculating Net Present Value (NPV) and its vital role in financial planning for capital investments.
- Scrutinize and decode the relevance of salvage value in the context of investment decisions.
- Understand the repercussions of varying discount rates on the NPV and IRR calculations for projects.
Verified Answer
EB
Learning Objectives
- Understand thoroughly the concept and procedure for calculating Net Present Value (NPV) and its vital role in financial planning for capital investments.
- Scrutinize and decode the relevance of salvage value in the context of investment decisions.
- Understand the repercussions of varying discount rates on the NPV and IRR calculations for projects.