A Project Is Expected to Create Operating Cash Flows of $35,000

question 14

Multiple Choice

A project is expected to create operating cash flows of $35,000 a year for four years. The initial cost of the fixed assets is $100,000. These assets will be worthless at the end of the project. An additional $5,000 of net working capital will be required throughout the life of the project. What is the project's net present value if the required rate of return is 11%?

• A) $1,879.25
• B) $3,585.60
• C) $6,879.25
• D) $8,585.60
• E) $11,879.25

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Definitions:

Operating Activities

Activities related to the day-to-day business operations, including cash flows from selling goods and services, and paying for expenses.

Cash Dividend

A payment made by a company out of its profits to its shareholders, usually in the form of cash.

Net Income

The total earnings of a company after subtracting all expenses, including taxes, from its total revenues.

Indirect Method

Indirect Method is a way of preparing the cash flow statement where net income is adjusted for non-cash transactions, changes in working capital, and other items to calculate cash flow from operating activities.