Question

1. For project A in year 2, inventories increase by $11,000 and accounts payable increase by...

1. For project A in year 2, inventories increase by $11,000 and accounts payable increase by $2,000. Accounts receivable remain the same. Calculate the increase or decrease in net working capital for year 2. Preprare a response based on the information provided.

2.

If an investment project (normal project) has an IRR equal to the cost of capital, the NPV for that project is

Group of answer choices

negative

unable to determine

positive

zero

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Homework Answers

Answer #1

INCREASE/DECREASE IN WORKING CAPITAL = INCREASE IN INVENTORY - INCREASE IN ACCOUNTS PAYABLE

INCREASE IN WORKING CAPITAL = 11000 - 2000 = 9000

There is an increase in working capital of 9000, so it is an out flow and should have negative sign. but as nothing is mentioned, negative sign is not written

Answer : Increase in working capital = 9000

---------------------------------------

If IRR > Cost of capital, NPV will be positive

If IRR < Cost of capital, NPV will be negative

If IRR = cost of capital, then NPV =0

Answer : zero

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