Bradley Company's Required Rate of Return Is 14

question 43

Essay

Bradley Company's required rate of return is 14%.The company has an opportunity to be the exclusive distributor of a very popular consumer item.No new equipment would be needed,but the company would have to use one-fourth of the space in a warehouse it owns.The warehouse cost $200,000 new.The warehouse is currently half-empty and there are no other plans to use the empty space.In addition,the company would have to invest $100,000 in working capital to carry inventories and accounts receivable for the new product line.The company would have the distributorship for only 5 years.The distributorship would generate a $17,000 net annual cash inflow.The working capital would be fully released at the end of the five years to be available for other purposes.
Required:
What is the net present value of the project at a discount rate of 14%? Should the project be accepted?

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