A Divisional Manager Submitted a Project Proposal to the Chief

question 24

Multiple Choice

A divisional manager submitted a project proposal to the chief financial officer,complete with a calculated NPV for the project.The chief financial officer studied the proposal and pointed out that the divisional manager had failed to account for a one-time increase in net working capital of $60,000 that will be required over the life of the seven-year project.Assuming the full value of net working capital will be recovered at the end of the project,how will the project's NPV change after making the chief financial officer's adjustment? Assume a discount rate of 9%.

• A) The NPV will decrease by $16,411.
• B) The NPV will decrease by $32,822.
• C) The NPV will decrease by $60,000.
• D) The NPV will not be affected.
• E) None of the above.

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Definitions:

Majority Decision

A decision in a legal case or deliberative body made by more than half of the members or judges but not unanimously.

Appellate Court

A higher court that reviews the decisions of lower courts and may affirm, reverse, or modify those decisions.

Reversed

The act of a higher court changing the decision of a lower court.

Trial Court

A court of law where cases are tried in the first instance, as opposed to an appellate court.