The following data on a proposed investment project have been provided: Cost of equipment $50,000 Working capital required $30,000 Salvage value of equipment $0 Annual cash inflows from the project $20,000 Required rate of return 20% Life of the project 8 years
cost of equipment=50,000$
working capital required=30,000$
Annual cash inflow=20,000$
reuired rate of return=20%
life of projct=8years
The working capital would be released for use elsewhere at the end of the project. The net present value of the project is closest to:
A $3,730
B $0
C $32,450
D $88,370

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cecylya cecylya · Answer 1 · 2019-08-16T02:16:53+02:00

Answer:

The correct answer is A $3,730

Explanation:

See document attached. To get the net present value, we make a cash flow in excel.

At moment 0 we have 2 investment cost

cost of equipment=50,000$

working capital required=30,000

From period 1 to period 8, we have cash inflow=$20,000.

At moment 8 , we also recover the working capital. ( consider you are selling this working capital to another project)

Then, we calculate the Net cash flow that is the difference between benefits and cost.

To get net present value, we use VNA formula.

=VNA(required rate of return; Net cash flow from moment 0 to moment 8 )+Net cash flow at moment 0