Dul Corporation has provided the following data concerning an investment project

Question

Dul Corporation has provided the following data concerning an investment project that it is considering:

Initial Investment:                               $170,000

Working Capital:                                  $64,000

Annual Cash Flow:                              $60,000

Salvage Value at the end of project:    $18,000

The working capital would be released for use elsewhere at the end of the project in 3 years. The company's discount rate is 7%. What is the net present value of the project closest to?

The working capital would be released for use elsewhere at the end of the project in 3 years. The company's discount rate is 7%. What is the net present value of the project closest to?

A. $(9,648) B. $54,352 C. $10,000 D. $(61,872)

Explanation / Answer

Answer -A $(9,648). This is the closed net present value.

Here is the working-

Year 1 2 3 Net Cash Inflow in $ 60000 60000 60000 Salvage Value in $ 18000 Return of working capital in $ 64000 Total Cash Inflow in $ 60000 60000 142000 × Present Value Factor with 7% 0.935 0.873 0.816 Present Value of Cash Flows in $ 56074.77 52406.32 115914.30 Total PV of Cash Inflows in $ 224395.39 Initial Investment in $(64000+170000) -234000 Net Present Value in $ -9604.61

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