Forise Water Company Drills Small Commercial Water Wells $\begin{array} { l l } \text { Asset } & \$ 600,000 \\ \text { Working capital } & \$ 128,000 \end{array}$

question 37

Multiple Choice

Forise Water Company drills small commercial water wells.The company is in the process of analyzing the purchase of a new drill.Information on the proposal is provided below. Initial investment:
$\begin{array} { l l } \text { Asset } & \$ 600,000 \\ \text { Working capital } & \$ 128,000 \end{array}$
Operations (per year for four years) :
$\begin{array}{lr}\text { Cash receipts } & \$ 450,000 \\\text { Cashexpenditures } & \$ 190,000\end{array}$
Disinvestment:
$\begin{array}{cr}\text { Salvage value of d rill (existing) } & \$ 50,000 \\\text { Discount rate } & 18 \%\end{array}$ What is the net present value of the investment? Assume there is no recovery of working capital.

• A) $(124,280)
• B) $21,400
• C) $82,724
• D) $149,400

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Definitions:

Capital Balance

The amount of money that a business or individual has invested in an asset or enterprise, reflecting the equity or ownership interest.

Partnership

A legitimately structured partnership where two or more persons share both the administrative roles and the profits.

Business For Profit

An organization engaged in commercial, industrial, or professional activities with the aim of generating income exceeding expenses.

Mutual Agency

A principle in partnership where each partner is authorized to act on behalf of the partnership and bind it with their actions.