Asked by
Ingrid Ameyalli
on Oct 10, 2024
Verified
Penniston Corporation is considering a capital budgeting project that would require an initial investment of $630,000 and working capital of $73,000.The working capital would be released for use elsewhere at the end of the project in 3 years.The investment would generate annual cash inflows of $228,000 for the life of the project.At the end of the project, equipment that had been used in the project could be sold for $29,000.The company's discount rate is 12%.The net present value of the project is closest to:
A) $(134,696)
B) $(82,720)
C) $(9,720)
D) $54,000
Working Capital
The difference between a company's current assets and current liabilities, indicating short-term financial health and operational efficiency.
Net Present Value
This is the calculation used to find the present value of cash flows from an investment, adjusted for time and interest, to determine profitability.
Initial Investment
The initial amount of money spent to purchase an asset, start a project, or launch a business venture, serving as a baseline for measuring future returns.
- Calculate the net present value for an investment project, ensuring all relevant cash flows are considered.
- Evaluate the importance of working capital in the calculation of a project's profitability and required investment.
Verified Answer
MM
Learning Objectives
- Calculate the net present value for an investment project, ensuring all relevant cash flows are considered.
- Evaluate the importance of working capital in the calculation of a project's profitability and required investment.