Question

Project Marvel is a five-year project. The project has a total cash inflow of $350,000. The present value of such inflows is $275,000. The project requires an initial investment of $200,000 and additional working capital of $25,000. What is the net present value of the project? a. $0 b. $50,000 c. ($50,000) d. ($250,000)

Answer 1

The answer is: B

Step-by-step explanation:

Capital budgeting is a process of evaluating investment projects to be undertaken by a company. Net Present Value (NPV) computation is one of the techniques used in this evaluation. This computation entails discounting cash flows, using an appropriate discount rate, which emerge as a result of undertaking the project or investment at the initial period prior to the commencement of a project or investment.

The computation of the net present value of future cash inflows of Project Marvel has already been done and the value is given as: $275, 000. The cash outflows which would occur are given as an initial investment of $200,000 and additional working capital of $25, 000. Total cash outflows which would occur in the current period thus amount to $225, 000. The net cash inflow from Project Marvel is $50, 000 ($275,000 - $225,000)

Answer 2

The correct answer is B.

Step-by-step explanation:

Giving the following information:

Project Marvel is a five-year project. The project has a total cash inflow of $350,000. The present value of such inflows is $275,000. The project requires an initial investment of $200,000 and an additional working capital of $25,000.

NPV= -Io + ∑[Cf/(1+i)^n]

Cf= cash flow

NPV= -225,000 + 275,000= 50,000