QUESTION 2

XYZ is considering a project that would last for 3 years and have a cost of capital of 20.90 percent. The relevant level of net working capital for the project is expected to be $2,033.10 immediately (at year 0); $4,920.00 in 1 year; $14,000.00 in 2 years; and $0.00 in 3 years. Relevant expected revenue, costs, depreciation, and cash flows from capital spending in years 0, 1, 2, and 3 are presented in the following table. The tax rate is 52.10 percent. What is the net present value of this project? .

Year 0 Year 1 Year 2 Year 3

Revenue $ 0.00 $12,300.00 $13,700.00 $10,600.00

Costs $ 0.00 $3,960.00 $3,660.00 $2,200.00

Depreciation $ 0.00 $2,110.00 $2,040.00 $2,400.00

Cash flows from capital spending $-7,000.00 $ 590.00 $ 220.00 $3,670.00

$8504.56 (plus or minus $10)

$4219.84 (plus or minus $10)

$-279.16 (plus or minus $10)

$9641.25 (plus or minus $10)

None of the above is within $10 of the correct answer