Facio Corporation has provided the following data concerning an investment project that it is considering: The working capital would be released for use elsewhere at the end of the project in 3 years.The company's discount rate is 8%.The net present value of the project is closest to:

A) $(113,022)
B) $(61,412)
C) $3,588
D) $52,000

Question

Facio Corporation has provided the following data concerning an investment project that it is considering:

The working capital would be released for use elsewhere at the end of the project in 3 years.The company's discount rate is 8%.The net present value of the project is closest to:

A) $(113,022)
B) $(61,412)
C) $3,588
D) $52,000

Samira Ranjber · Accepted Answer

Final Answer : B, Explanation :  To calculate the NPV, we need to find the present value of the cash flows of the project and then subtract the initial investment.PV of cash inflows:Year 1: $20,000 / (1+0.08)^1 = $18,518.52Year 2: $30,000 / (1+0.08)^2 = $25,401.38Year 3: $40,000 / (1+0.08)^3 = $31,090.17Terminal value: $100,000 / (1+0.08)^3 = $85,578.00Total PV of cash inflows = $18,518.52 + $25,401.38 + $31,090.17 + $85,578.00 = $160,587.07PV of initial investment: $200,000 / (1+0.08)^0 = $200,000NPV = $160,587.07 - $200,000 = -$39,412.93Therefore, the closest answer choice is B) $(61,412).

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