Homework Answers
Lets cost of capital be 10%
NPV under current situation will be
| YEAR | CASHFLOW | DISCOUNT FACTOR @10% | PRESENT VALUE |
| 0 | -10,000 | 1.0000 | -10000.00 |
| 1 | 4000 | 0.9091 | 3636.40 |
| 2 | 4000 | 0.8264 | 3305.60 |
| 3 | 2000 | 0.7513 | 1502.55 |
| NPV = | -1555.45 |
NPV under revised situation (twice the amount) will be
| YEAR | CASHFLOW | DISCOUNT FACTOR @10% | PRESENT VALUE |
| 0 | -20,000 | 1.0000 | -20000.00 |
| 1 | 8000 | 0.9091 | 7272.80 |
| 2 | 8000 | 0.8264 | 6611.20 |
| 3 | 4000 | 0.7513 | 3005.09 |
| NPV = | -3110.91 |
So NPV will decrease (option A) when the amount of NWC were twice in each year
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