Answer to Question #123609 in Finance for jad

Question

Use the following data to answer Questions 1 through 14:
Data Mining is considering an expansion project. The company’s management has decided that the initial cost of the project is $300,000 with an additional installment cost of $80,000 and a $30,000 cost for research purposes related to the project. The project’s life is four years with a salvage value of $60,000 and it will be depreciated over four years using the straight-line method.
Management has also decided that $45,000 in inventories and $12,000 in accounts payable are needed if the project is taken today.
During the next four years, total sales are expected to be 525,100, 642,000, 504,400 and 698,500 respectively and total operating costs (excluding depreciation) are expected to be 234,000, 302,300, 272,000 and 440,000 respectively
The weighted average cost of capital is at 10% and the tax rate is 40%.
1. The net working capital (NWC) equals: *
A. $33,000
B. $45,000
C. $57,000
D. $47,000

Answer 1

By adding instalment of $80000 and cost of research related $ 30000

80000+30000= 110000

Initial cost of the project = $300000

Instalment cost = $ 110000

Salvage value = $ 60000

Inventories = $ 45000

Account payable = $12000

Total sales = $ 2370000

Operating cost = $1248300

Tax rate = $ 948000

Weighted average cost of capital = $57000

Therefore :

net working capital (NWC) = current asset - Current liabilities

NWC =$ (300000+ 110000 + 45000+ 2370000) - $ (60000+ 12000+948000+499700+1248300)

NWC = $(2825000 - 2768000)

Nwc = $57000