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A company is considering an investment in a new project which would require $39,000 worth of...

  1. A company is considering an investment in a new project which would require $39,000 worth of capital expenditures and an increase of $45,000 in net working capital that will be recovered at the end of the project. Each year, starting at the end of the first year, the operating cash flows of the project will be $32,000 for 3 years. The project is so risky and so crazy its WACC is 16%. What is the net present value of the project?

    ($14.42)

    $10.99

    $12.97

    $153.36

    None of these

Solutions

Expert Solution

Ans None of these

Year Project Cash Flows (i) DF@ 16% DF@ 16% (ii) PV of Project ( (i) * (ii) )
0 -84000 1 1                   (84,000.00)
1 32000 1/((1+16%)^1) 0.862                     27,586.21
2 32000 1/((1+16%)^2) 0.743                     23,781.21
3 32000 1/((1+16%)^3) 0.641                     20,501.05
3 45000 1/((1+16%)^3) 0.641                     28,829.60
NPV                     16,698.06

jeff jeffy answered 4 months ago
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