Question

Which of the following factors should be included in the cash flows used to estimate a project's NPV?a. All costs associated with the project that have been incurred prior to the time the analysis is being conducted.b. Interest on funds borrowed to help finance the project.c. The end-of-project recovery of any additional net operating working capital required to operate the project.d. Cannibalization effects, but only if those effects increase the project's projected cash flows.e. Expenditures to date on research and development related to the project, provided those costs have already been expensed for tax purposes.

Answer 1

Answer:

c. The end-of-project recovery of any working capital required to operate the project.

Explanation:

In the Process of Computing Net present value of Project , we need to to consider all the cash in flows. To Operate the Project we need an amount in excess the amount invested in the Project assets, that amount is called Working capital. This amount rotate throught life of the Project and the project relief that working capital on the end of the Project. But in calculating Present value of cash we also need to calculate the Present value of working capital that recovered at the end of the porject by Multiplying with Present value factor at Required rate.