Joel's Shop Needs to Maintain 15% of Its Sales in Net

question 169

Multiple Choice

Joel's Shop needs to maintain 15% of its sales in net working capital. Joel's is considering a 4-year project which will increase sales from their current level of $130,000 to $150,000 the first year and
To $165,000 a year for the following three years. What amount should be included in the project
Analysis for net working capital in year four of the project?

• A) -$19,500
• B) $0
• C) $5,250
• D) $7,000
• E) $24,750

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Definitions:

Discount Rate

The rate of interest applied in the evaluation of discounted cash flows to calculate the current value of future cash movements.

Perpetuity

A financial instrument that pays a fixed amount of income indefinitely, with no end date.

Art Collection

An accumulation of artworks curated by individuals, institutions, or organizations, typically for cultural, aesthetic, or investment purposes.

Discount Rate

The interest rate used in discounted cash flow analysis to determine the present value of future cash flows.