Question

A company needs an increase in working capital of $22,000 in a project that will last...

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:

Homework Answers

Answer #1
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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