A Project Will Produce Operating Cash flOws of $57,000 a Year

question 321

Multiple Choice

A project will produce operating cash flows of $57,000 a year for 3 years. During the life of the project, inventory will be lowered by $10,000 and accounts receivable will increase by $20,001.
Accounts payable will decrease by $5,001. The project requires the purchase of equipment at an
Initial cost of $90,001. The equipment will be salvaged at the end of the project creating a $17,000
After-tax cash inflow. 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) $42,908.17
• B) $44,141.41
• C) $48,772.08
• D) $54,681.35
• E) $56,209.19

---

Definitions:

Realization of Revenue

The realization of revenue occurs when a company has earned its revenue—typically through the delivery of goods or services—and it can be recognized on the financial statements.

Financial Statements

Financial statements are records that convey the business activities and the financial performance of a company, typically including the balance sheet, income statement, and cash flow statement.

Immediate Recognition

The accounting practice of reporting revenue or expenses in the current period as they are incurred, without deferral.