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Thomas Food Enterprises, Inc. is considering launching a new corporate project. The company will have to make Capital Investments, Invest in Net Working Capital, and
Thomas Food Enterprises, Inc. is considering launching a new corporate project. The company will have to make Capital Investments, Invest in Net Working Capital, and generate Cash Flows from Operating the new project. The Equipment required for the project will cost $8,850,000, will last for six years (the length of the project), and is estimated to be worthless at the end of its useful life. The initial investment in Net Working Capital needs to be $300,000, while the year-end investment in NWC for years 1-5 will be 12% of the current year's sales; ending Net Working Capital at the end of year six will be zero. Year One's sales will be $5,300,000 with annual growth at 5%; operating expenses will be 40% of sales. The company uses Straight-Line depreciation and has a Tax Rate of 20%. The appropriate discount rate for the risks involved is 12%. By how much does the Net Present Value of this project change if improved Working Capital Management cuts the required investment in Net Working Capital (at all timepoints) in half? (round your answer to the nearest whole dollar) Multiple Choice $191,320 $240,742 $81,987 $150,315 (0) none of the above
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