A company needs an increase in working capital of $22,000 in a project that will last 4 years. The company's tax rate is 30% and its after-tax discount rate is 10%.
Click here to view Exhibit 13B-1 to determine the appropriate discount factor(s) using table.
The present value of the release of the working capital at the end of the project is closest to:
| Present value of the release of the working capital at the end of the project |
| Present value of the working capital = Working capital x Present Value factor |
| Present value of the working capital = Working capital x [1 / (1 + Discount rate)^n] |
| Present value of the working capital = $22,000 x [1 / (1 + 0.10)^4] |
| Present value of the working capital = $22,000 x [1 / 1.4641] |
| Present value of the working capital = $22,000 x 0.863 |
| Present value of the working capital = $15,026 |
| Therefore, the present value of the release of the working capital at the end of the project is closest to $15,026 |
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