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koban [17]
3 years ago
8

Assume a company has a cost of capital that is greater than zero and has cash flows related to the changes in net working capita

l as follows: Year 0 = -10,000, Year 1 = +4,000, Year 2 = +4,000, Year 3 = +2,000 Given the above information, if NWC requirements doubled (i.e. each year's NWC were twice as much), what would be the impact on NPV? O A Decrease B. Increase c. No impact The information provided is insufficient to make a decision.
Business
1 answer:
Otrada [13]3 years ago
7 0

Answer:

A. Decrease

Explanation:

In investment appraisal with the method of Net Present Value, the bone of contention and the central matter is the TIME VALUE OF MONEY.

In the above scenario, the initial working capital was 100% released in proportions of 40%, 40% and 20%, throughout the 3 years of the project. However, if the reverse had been the case, i.e. parting with more cash now and the requirement of working capital now becomes: Year 0 = -10,000, Year 1 = - 10,000, Year 2 = -10,000, Year 3 = +30,000; the NPV would definitely shrink because the value of 10,000 each in Years 0-2 would not be the same when it is recovered from the project in year 3. The value will be smaller and hence the NPV of the project would have decreased as a result of the time value of money.

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When items are purchased using cash, the corresponding credits in such transactions are recorded in the cash account. Where the item is purchased on account (or credit), the credit is posted to accounts payable.

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2 years ago
TB 01-85 Payment of accounts payable decreases both I...
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4 0
2 years ago
Suppose you deposit $116 today, $135 in one year, and $885 in two years in an account that pays an annual rate of interest of 14
olga nikolaevna [1]

Answer:

The answer is $1357.85

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7 0
2 years ago
Using the Business Process Pragmatism procedure as part of his decision making process, Trevor first should perform a(n) _______
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According to the given question, by using the procedure of the business process for making the various types of decisions and the Trevor should perform the inquiry process for determining the ethical and some legal issues.

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