Question
XYZ is considering a project that would last for 3 years and have a cost of capital of 22.70 percent. The relevant level of net
XYZ is considering a project that would last for 3 years and have a cost of capital of 22.70 percent. The relevant level of net working capital for the project is expected to be $1,936.90 immediately (at year 0); $4,540.00 in 1 year; $15,000.00 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 50.20 percent. What is the net present value of this project? .
| Year 0 | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|
| Revenue | $ 0.00 | $13,000.00 | $11,900.00 | $10,500.00 |
| Costs | $ 0.00 | $3,970.00 | $3,780.00 | $2,100.00 |
| Depreciation | $ 0.00 | $1,630.00 | $2,400.00 | $2,800.00 |
| Cash flows from capital spending | $-5,750.00 | $1,390.00 | $ 980.00 | $3,710.00 |
| $1561.19 (plus or minus $10) | ||
| $5999.49 (plus or minus $10) | ||
| $7957.36 (plus or minus $10) | ||
| $11771.71 (plus or minus $10) | ||
| None of the above is within $10 of the correct answer |
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