Question
XYZ is considering a project that would last for 3 years and have a cost of capital of 21.30 percent. The relevant level of net
XYZ is considering a project that would last for 3 years and have a cost of capital of 21.30 percent. The relevant level of net working capital for the project is expected to be $1,795.10 immediately (at year 0); $4,700.00 in 1 year; $13,800.00 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 46.00 percent. What is the net present value of this project?.
| Year 0 | Year 1 | Year 2 | Year 3 | |
|---|---|---|---|---|
| Revenue | $ 0.00 | $12,200.00 | $11,000.00 | $11,100.00 |
| Costs | $ 0.00 | $3,590.00 | $3,720.00 | $3,600.00 |
| Depreciation | $ 0.00 | $2,100.00 | $2,360.00 | $1,900.00 |
| Cash flows from capital spending | $-6,970.00 | $ 350.00 | $1,620.00 | $3,210.00 |
| a. | $8155.32 (plus or minus $10) | |
| b. | $-26.33 (plus or minus $10) | |
| c. | $9658.50 (plus or minus $10) | |
| d. | $4373.43 (plus or minus $10) | |
| e. | None of the above is within $10 of the correct answer |
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
13th edition
1439078106, 111197375X, 9781439078105, 9781111973759, 978-1439078099
