Question
5 WT Ltd is considering investing in a project that will cost $2250,000 and will last for 10 years. One year ago, PQ hired an
5 WT Ltd is considering investing in a project that will cost $2250,000 and will last for 10 years. One year ago, PQ hired an consultant to collect market information and paid $15,000 fees. The CFO suggests the project will generate a net operating profit after tax(i.e. EBIT*(1-t)) of $800,000 each year and will recoup $600,000 salvage value after tax at the end of the project. WTD Ltd incurs $150,000 interest expenses per year and the depreciation expense associated with the project is $200,000 per year. The marginal tax rate for the company is 30%. The project also require the following changes in current assets and current liabilities on the inception of the project. a.80000 increase in inventory b. 30000 increase in account payable
1 Which of the following is correct? The total net cashflow to the company at the end of the project is A 1,600,000 B 1,700,000 C 1,650,000 D 600,000 E 650,000
2 Which of the following changes would have a direct negative impact on the companys net cash flow? A the 500,000 net operating profit after tax B the 400,000 salvage value C the 80,000 increase in inventory D the 5,000 consulting fee E the 30,000 increase in account payable
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