The Following Data Pertain to an Investment Proposal The Working Capital Would Be Released for Use Elsewhere When

question 27

Multiple Choice

The following data pertain to an investment proposal: $\begin{array} { l r } \text { Investment in the Project (equipment) } & \$ 14,000 \\\text { Net Annual Cash Inflows Promised } & \$ 2,800 \\\text { Working Capital Required } & \$ 5,000 \\\text { Salvage Value of the Equipment } & \$ 1,000 \\\text { Life of the Project } & 10 \text { years }\end{array}$ The working capital would be released for use elsewhere when the project is completed.What is the net present value of the project,using a discount rate of 8%? (Ignore income taxes in this problem.)

• A) ($251).
• B) $251.
• C) $2,566.
• D) $5,251.

Appreciate the role of opportunity costs in project analysis.

Understand the significance of after-tax cash flows in capital budgeting.

Acknowledge the inclusion of final cash flows including salvage value and recovery of net working capital in project assessment.

Differentiate between the types of costs and revenues that affect operating cash flow.

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Definitions:

Losses

The amount by which costs exceed income, resulting in a negative financial outcome for businesses or individuals.

Resource Allocation

The process of distributing available resources among various projects or business units.

Dental Services

Professional care related to the maintenance and treatment of oral health delivered by licensed practitioners.

Economic Profit

The dissimilarity between total sales revenue and comprehensive spending, including both clear-cut and notional costs.