Net Working Capital Is Expected to Increase by $25,000 Over

question 57

Multiple Choice

Net working capital is expected to increase by $25,000 over the 5-year life of a project. What is the effect of net working capital on the project's net present value if the cost of capital is 15%?

• A) NPV will not be affected because the $25,000 will all be recouped.
• B) NPV will increase by $12,429.42.
• C) NPV will decrease by $25,000.
• D)NPV will decrease by $12,570.58.

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Definitions:

Long-Term Care Insurance

Insurance coverage designed to provide for the cost of long-term care services, including nursing home care, assisted living, or home caregiver services, potentially offering tax deductions for premiums paid.

Medical Expenses

Costs associated with the diagnosis, cure, mitigation, treatment, or prevention of disease, and expenses for treatments affecting any part of the body, potentially tax-deductible.

Deductible

An expense that can be subtracted from adjusted gross income to reduce taxable income, thereby lowering tax liability.

Investment Interest Expense

Interest paid on money borrowed to purchase or held for investment purposes, which can be deducted to reduce taxable income under certain conditions.