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

question 127

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 t_o-$25,000 outflow
• T₅-inflow, which has a present value of $12,429.42 (25,000/1.15⁵)

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Definitions:

Demand Curve

A visual diagram showing the correlation between an item's price and the amount of it that consumers want to buy.

Profit Maximized

Profit maximized refers to a scenario where a firm achieves the highest possible profit from its operations, where marginal costs equal marginal revenue.

Marginal Profit

Marginal profit refers to the additional profit a company gains from selling one more unit of a good or service.

Marginal Revenue

The additional income gained by selling one more unit of a product or service.