Assume that you are looking at an investment opportunity that offers

jagguarpaw January 11, 2017 0 Comments

Question: Note: This is a question form the capital budgeting…

Note: This is a question form the capital budgeting chapter!

Assume that you are looking at an investment opportunity that offers an annual operating cash flow of $40,000 per year for 4 years. The initial investment to purchase the necessary equipment is $200,000. You assume that you can sell the equipment at the end of 4 years for $70,000. Also, initially there is a need for an investment in net working capital of $15,000, but this increases to $35,000 in year 1. If your required rate of return is 5% and the tax rate is 35%, what is the NPV?

Yes, because the NPV is $3,230.00

Yes, because the NPV is $30,000.00

No, because the NPV is -$5,825.84

No, because the NPV is -$25,982.05

No, because the NPV is -$23,388.48v