You are reviewing the anlaysis of an investment project done by one of your staff. You...
You are reviewing the anlaysis of an investment project done by one of your staff. You find the analysis is correct except for having ignored changes in net working capital. You expect the project to require an increase in net working capital of $74000 at the start, an increase of $25900 more after year 1, a decrease of $37000 after year 5, and finally return all of the remaining net working capital after year 10, which is the end of the project. If the analysis had calculated an NPV of $78627, what is the project's revised NPV, including the effect of changes in net working capital, if the project's cost of capital is 11.2%? (Rounded to the nearest dollar.)
Homework Answers
Revised NPV = Original NPV- PV of increase in working capital-PV of increase in working capital+PV of recovery of working capital+PV of recovery of working capital
= 78627 - 74000-25900/1.112^1 + 37000/1.112^5+ (74000+25900-37000)/1.112^10
= 24853.77
= 24854
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