You are looking at a project analysis, which yields a net present value of $ 18,829. The project analyst, however, failed to consider working capital requirements in calculating the net present value. (The working capital investment needed is $ 10,000 initially, and will increase by $ 4,641 over the next five years, but the entire amount of $14,641 will be salvaged at the end of the fifth year. The entire amount will be salvaged at the end of the project life, and the discount rate is 10%). What effect will considering working capital have on the net present value? Also, Explain how NPV would be affected when Net working operating capital is included in the capital budgeting of above project verses NPV calculation when net working operating capital is NOT included in this capital budgeting example of above project

You are looking at a project analysis, which yields a net present value of $ 18,829. The project analyst, however, failed to consider working capital requirements in calculating the net present value. (The working capital investment needed is $ 10,000 initially, and will increase by $ 4,641 over the next five years, but the entire amount of $14,641 will be salvaged at the end of the fifth year. The entire amount will be salvaged at the end of the project life, and the discount rate is 10%). What effect will considering working capital have on the net present value? Also, Explain how NPV would be affected when Net working operating capital is included in the capital budgeting of above project verses NPV calculation when net working operating capital is NOT included in this capital budgeting example of above project

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...

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