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:

Availability Heuristic

A mental shortcut that relies on immediate examples that come to mind when evaluating a specific topic, concept, method, or decision.

Representativeness Heuristic

The representativeness heuristic is a cognitive bias where people judge the probability of an event or the likelihood of an object belonging to a category by how much it resembles a typical case.

Heuristics

Cognitive shortcuts or rules of thumb that simplify decision making, often used unconsciously.

Effortful Thinking

The cognitive processing that requires a deliberate, conscious effort to solve complex problems or to gain new insights.