Vega Music's Projected Net Income and Free Cash Flows Are

question 16

Multiple Choice

Vega Music's projected net income and free cash flows are given above in thousands of dollars.Vega expects that their net income and increases in net working capital to increase by 5% per year.If Vega were able to reduce its annual increase in working capital by 10% without affecting any other part of the business adversely,what would be the effect of this reduction on Vega's value,given a cost of capital of 13%?

• A)an increase of $500,000
• B)an increase of $1,370,000
• C)an increase of $2,500,000
• D)an increase of $3,800,000

---

Definitions:

Negative Cumulative Cash Surplus

A financial situation where the cumulative cash flows from a project or business are negative, indicating a deficit.

Borrowing Need

The necessity for an individual or organization to raise funds through loans or debt issuance to finance its operations or investments.

Costs Of Placing An Order

Expenses associated with ordering inventory, including administrative costs, shipping, handling, and procurement costs, critical in managing inventory levels.

Shortage Cost

Costs incurred from not having enough inventory or resources to meet demand, including lost sales and dissatisfied customers.