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What is the IRR of a project costing $250,000 with a WACC = 11%? The cash...

What is the IRR of a project costing $250,000 with a WACC = 11%? The cash flows for this project are shown below. Should you accept or reject the project?

Year 1 $75,000

Year 2 $125,000

Year 3   $125,000

Year 4   $125,000

Year 5   $50,000

What is working capital management? Why is working capital so important?

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Answer #1
A B
Year Cash Flow
1 0 -250000
2 1 75000
3 2 125,000
4 3 125,000
5 4 125,000
6 5 50,000
IRR 26%

IRR(A1:A6)

The proposal should be accepted because IRR is greater than WACC( 26% > 11%)
Working capital management is efficient use of current assets (inventories, accounts receivable, etc.) and current liabilities (short term debt, accounts payables, etc...). Positive working capital means current assets can pay off all current liabilities and vice versa.
It is important for maintaining liquidity in the firm. It is important to manage short term cash flows of the firm. Higher Working capital low the cash flow and lower the working capital higher the cash flow. It helps in higher profitability, competitive edge over competitors, increased liquidity, etc.

Best of Luck. God Bless

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