A Project Will Produce Operating Cash Flows of $60,000 a Year

question 224

Multiple Choice

A project will produce operating cash flows of $60,000 a year for four years. During the life of the project, inventory will be lowered by $20,000 and accounts receivable will increase by $25,000. Accounts payable will decrease by $10,000. The project requires the purchase of equipment at an initial cost of $200,000. 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 $30,000 after-tax cash flow. 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 12%?

• A) -$17,759.04
• B) -$13,693.50
• C) -$4,160.73
• D) $2,194.46
• E) $10,839.27

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