How Does Net Working Capital Affect the NPV of a Five-Year

question 109

Multiple Choice

How does net working capital affect the NPV of a five-year project if working capital is expected to increase by $25,000 and the firm has a 15% cost of capital?

• A)NPV will increase by $9,322
• B)NPV will increase by $12,571
• C)NPV will decrease by $25,000
• D)NPV will decrease by $12,571

---

Definitions:

Highest Rank

Refers to the position or level within a hierarchy or organizational structure that is at the top or most senior.

Payback Periods

The amount of time it takes for an investment to generate cash flows sufficient to recover its initial cost.

Investments

Items or resources purchased with the intention of earning income or increasing in value as time goes on.

Short Payback Period

A time frame in which an investment is expected to be recovered quickly, indicating potential attractiveness.