Zabarkes Corporation is considering a capital budgeting project that would require an initial investment of $640,000 and working capital of $79,000. The working capital would be released for use elsewhere at the end of the project in 3 years. The investment would generate annual cash inflows of $205,000 for the life of the project. At the end of the project, equipment that had been used in the project could be sold for $29,000. The company's discount rate is 7%. The net present value of the project is closest to:

Question

Marquise May

Business

8 January, 23:49

Zabarkes Corporation is considering a capital budgeting project that would require an initial investment of $640,000 and working capital of $79,000. The working capital would be released for use elsewhere at the end of the project in 3 years. The investment would generate annual cash inflows of $205,000 for the life of the project. At the end of the project, equipment that had been used in the project could be sold for $29,000. The company's discount rate is 7%. The net present value of the project is closest to:

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Ozzie · Answer 1

($92,857)

Explanation:

The computation of the net present value is shown below:

Items Year Amount of Cash inflow 7% factor Present value of cash flow

Initial Investment 0 $640,000 1 (640,000)

Working capital required 0 $79,000 1 (79,000)

net annual cash inflows 1-3 $205,000 2.6243 $537,982

Working capital released 3 $79,000 0.8163 $64,488

Equipment Sold 3 $29,000 0.8163 $23,673

Net Present Value ($92,857)

Refer to the discount table at 7%