Question
Orange Valley Recycling is considering a project that would last for 3 years and have a cost of capital of 15.69 percent. The relevant level
Orange Valley Recycling is considering a project that would last for 3 years and have a cost of capital of 15.69 percent. The relevant level of net working capital for the project is expected to be 16,000 dollars immediately (at year 0); 8,000 dollars in 1 year; 39,000 dollars in 2 years; and 0 dollars in 3 years. Relevant expected operating cash flows and cash flows from capital spending in years 0, 1, 2, and 3 are presented in the following table. What is the net present value of this project?
| Time 0 | Year 1 | Year 2 | Year 3 |
Operating cash flows (in dollars) | 0 | 74,000 | 62,000 | 71,000 |
Cash flows from capital spending (in dollars) | -159,000 | 0 | 0 | 8,000 |
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