Question

# A project has an initial investment in equipment of​ \$310,000 and in net working capital of​...

A project has an initial investment in equipment of​ \$310,000 and in net working capital of​ \$62,000. The equipment will be depreciated over the​ 3-year life of the project to a salvage value of​ \$155,000. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is​ \$345,000 and the discount rate is 25 percent. What is the​ project's net present value if the tax rate is 34​ percent?

A. ​\$380,800.00 B. ​\$442,800.00 C. ​\$385,561.60 D. ​\$333,184.00 E. ​\$412,544.00

Initial Investment = \$310,000
Salvage Value = \$155,000
Useful Life = 3 years

Initial Investment in NWC = \$62,000

Annual Operating Cash Flow = \$345,000

Year 0:

Net Cash Flows = Initial Investment + Initial Investment in NWC
Net Cash Flows = -\$310,000 - \$62,000
Net Cash Flows = -\$372,000

Year 1 to Year 2:

Net Cash Flows = Operating Cash Flow
Net Cash Flows = \$345,000

Year 3:

Net Cash Flows = Operating Cash Flow + NWC recovered + Salvage Value
Net Cash Flows = \$345,000 + \$62,000 + \$155,000
Net Cash Flows = \$562,000

Required return = 25%

NPV = -\$372,000 + \$345,000/1.25 + \$345,000/1.25^2 + \$562,000/1.25^3
NPV = \$412,544

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