Asked by Abbas Ghaderi on Jul 14, 2024
Verified
The total net present value of the proposed equipment acquisition is closest to:
A) $21,760.
B) $78,240.
C) $0.
D) ($1,600) .
Net Present Value
A calculation that compares the present value of cash inflows with the present value of cash outflows over a period of time.
Working Capital
The difference between a company's current assets and current liabilities, indicating its ability to meet short-term obligations.
Discount Rate
A discount rate utilized in discounted cash flow assessment for establishing the present worth of expected cash flows.
- Engage net present value (NPV) and internal rate of return (IRR) frameworks to scrutinize investment options.
- Gain insights into the role of salvage value and depreciation in determining the economic outcomes of investment projects.
- Assess how fluctuations in working capital influence the investment cash flows.
Verified Answer
HH
Hussain HamedJul 16, 2024
Final Answer :
B
Explanation :
The total net present value (NPV) is calculated by discounting all cash inflows and outflows to their present value using the company's discount rate of 10%. This includes the initial cost of the equipment, the working capital required, the annual operating cash inflows, the cash repair at the end of 4 years, and the salvage value plus the release of working capital at the end of 6 years. The closest NPV to the options given, considering all these factors, is $78,240.
Learning Objectives
- Engage net present value (NPV) and internal rate of return (IRR) frameworks to scrutinize investment options.
- Gain insights into the role of salvage value and depreciation in determining the economic outcomes of investment projects.
- Assess how fluctuations in working capital influence the investment cash flows.