Question

Help Save & Exit Submit 20 Jasper Metals is considering installing a new molding machine which is expected to produce operating cash flows of $56.000 per year for 7 years. At the beginning of the project, inventory will decrease by $16.800, accounts receivables will increase by $21.400, and accounts payable will increase by $15.300. At the end of the project. net working capital will return to the level it was prior to undertaking the new project. The initial cost of the molding machine is $252.000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating an attrax cash flow of $50,000 What is the net present value of this project given a required return of 10.1 percent? 8 Murple Choice o { $50,475 o $57.974 o O $50343 < Prev 20 of 20 Next > Type here to search

Answer 1

rate positively ..

	Computation of working capital
	Decrease in inventory		-16800
	Increase in account receivable		21400
	increase in account payable		-15300
	Working capital		-10700
	Computation of NPV
	Year	0	1	2	3	4	5	6	7
i	Initial cost	-252000
ii	Working capital	10700							-10700
iii	Revenue		56000	56000	56000	56000	56000	56000	56000
iv	Salvage value								50000
v=i+ii+iii+iv	Total cash flow	-241300	56000	56000	56000	56000	56000	56000	95300
vi	PVIF @ 10.1%	1	0.9082652	0.8249457	0.7492695	0.6805354	0.6181066	0.5614048	0.5099044
vii=v*vi		(241,300)	50,863	46,197	41,959	38,110	34,614	31,439	48,594	50,475
	Therefore answer =	50,475