Assume that you are looking at an investment opportunity that offers an annual o
ID: 2675936 • Letter: A
Question
Assume that you are looking at an investment opportunity that offers an annual operating cash flow of $40,000 per year for 4 years. The initial investment to purchase the necessary equipment is $200,000. You assume that you can sell the equipment at the end of 4 years for $70,000. Also, initially there is a need for an investment in net working capital of $15,000, but this increases to $35,000 in year 1. If your required rate of return is 5% and the tax rate is 35%, what is the NPV?a.Yes, because the NPV is $3,230.00
b.Yes, because the NPV is $30,000.00
c.No, because the NPV is -$5,825.84
d.No, because the NPV is -$25,982.05
e.No, because the NPV is -$23,388.48
Explanation / Answer
e.No, because the NPV is -$23,388.48