A Project Will Produce Operating Cash Flows of $39,000 a Year

question 39

Multiple Choice

A project will produce operating cash flows of $39,000 a year for 4 years.During the life of the project,inventory will be lowered by $9,000,accounts receivable will increase by $14,000,and accounts payable will increase by $11,000.The project requires $118,000 of new equipment that will be depreciated straight-line to a zero book value over 4 years.At the end of the project,net working capital will return to its normal level and the equipment will be sold for $21,000,aftertaxes.What is the net present value given a required return of 13 percent?

• A)$14,322.49
• B)$13,483.48
• C)$18,117.05
• D)$13,204.16
• E)$12,804.42

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Definitions:

Long-run Average Costs

The average cost per unit of output when all factors of production and costs are variable in the long run.

Production Process

Refers to the sequence of steps or activities involved in converting raw materials into finished goods or services.

Nondegradable Waste

Waste materials that cannot be broken down or decomposed by natural processes, leading to long-term environmental pollution.

Environmental Regulation

Rules and standards set by governments to control activities that cause environmental harm, aiming to protect the environment and public health.