In: Finance
initial capital cost = 3,500,000
operating cash flow for each year = $1,000,000
recovery of capital Assets after five years =$270,000
the hurdle rate for this project is 12%. it the initial cost of working capital is $490,000 for each items as teapots, teacups, saucers, and napkins, should farbucks open this new shop if it will be in business for only five years?
what is the most it can invest in working capital and still have a positive net present value?
Following screenshot shows how to calculate the NPV:
Explanation:
To find out the maximum possible value of working capital investment keeping the NPV positive, we can either do a hit an trial method or use the goal seek function of excel:
Unis the goal seek above screen shot shows that the NPV becomes 0 at a working capital investment of 596388 so any value below this will give a positive NPV keeping everything else constant