Reynolds Metals Is Considering a Project with a Life of 4

question 5

Multiple Choice

Reynolds Metals is considering a project with a life of 4 years that will produce annual operating cash flows of $57,000.During the life of the project,inventory will be lowered by $28,000,accounts receivable will increase by $15,000,and accounts payable will increase by $6,000.The project requires the purchase of equipment at an initial cost of $104,000 that will be depreciated straightline to a zero book value over the life of the project.Ignore bonus depreciation.The equipment will be salvaged at the end of the project creating an aftertax cash inflow of $22,000.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 16 percent?

• A)$83,483.48
• B)$78,117.05
• C)$76,153.17
• D)$80,037.86
• E)$79,876.02

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