A Project Will Produce Operating Cash Flows of $45,000 a Year

question 59

Multiple Choice

A project will produce operating cash flows of $45,000 a year for four years. During the life of the project,inventory will be lowered by $30,000 and accounts receivable will increase by $15,000. Accounts payable will decrease by $10,000. The project requires the purchase of equipment at an initial cost of $120,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating a $25,000 after-tax cash flow. 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 14%?

• A) $3,483.48
• B) $16,117.05
• C) $27,958.66
• D) $32,037.86
• E) $49,876.02

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