Working capital and capital budgeting. Farbuck's Tea Shops is thinking about opening another tea shop. The incremental cash flow (not including the working capital investment) for the first five years is as follows: Click on the icon o in order to copy its content into a spreadsheet Initial capital cost = $3,500,000 Operating cash flow for each year = $1,000,000 Recovery of capital assets after five years = $270,000 The hurdle rate for this project is 13%. If the initial cost of working capital is $510,000 for items such as teapots, teacups, saucers, and napkins, should Farbuck's open this new shop if it will be in business for only five years? What is the most it can invest in working capital and still have a positive net present value? Should Farbuck's open this new shop if it will be in business for only five years? (Select the best response.) O A. No. Farbuck's should not open the new shop because the project's NPV is - $76,358. O B. Yes. Farbuck's should open the new shop because the project's NPV is $69,416. C. No. Farbuck's should not open the new shop because the project's NPV is - $69,416. O D. Yes. Farbuck's should open the new shop because the project's NPV is $76,358. What is the most it can invest in working capital and still have a positive net present value? (Round to the nearest dollar.)
Working capital and capital budgeting. Farbuck's Tea Shops is thinking about opening another tea shop. The incremental cash flow (not including the working capital investment) for the first five years is as follows: Click on the icon o in order to copy its content into a spreadsheet Initial capital cost = $3,500,000 Operating cash flow for each year = $1,000,000 Recovery of capital assets after five years = $270,000 The hurdle rate for this project is 13%. If the initial cost of working capital is $510,000 for items such as teapots, teacups, saucers, and napkins, should Farbuck's open this new shop if it will be in business for only five years? What is the most it can invest in working capital and still have a positive net present value? Should Farbuck's open this new shop if it will be in business for only five years? (Select the best response.) O A. No. Farbuck's should not open the new shop because the project's NPV is - $76,358. O B. Yes. Farbuck's should open the new shop because the project's NPV is $69,416. C. No. Farbuck's should not open the new shop because the project's NPV is - $69,416. O D. Yes. Farbuck's should open the new shop because the project's NPV is $76,358. What is the most it can invest in working capital and still have a positive net present value? (Round to the nearest dollar.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question 9, part 2
Transcribed Image Text:Working capital and capital budgeting. Farbuck's Tea Shops is thinking about opening another tea shop. The incremental cash flow (not including the working
capital investment) for the first five years is as follows:
Click on the icon a in order to copy its content into a spreadsheet
Initial capital cost = $3,500,000
Operating cash flow for each year =$1,000,000
Recovery of capital assets after five years = $270,000
The hurdle rate for this project is 13%. If the initial cost of working capital is $510,000 for items such as teapots, teacups, saucers, and napkins, should Farbuck's open
this new shop if it will be in business for only five years? What is the most it can invest in working capital and still have a positive net present value?
Should Farbuck's open this new shop if it will be in business for only five years? (Select the best response.)
O A. No. Farbuck's should not open the new shop because the project's NPV is - $76,358.
O B. Yes. Farbuck's should open the new shop because the project's NPV is $69,416.
Oc. No. Farbuck's should not open the new shop because the project's NPV is - $69,416.
O D. Yes. Farbuck's should open the new shop because the project's NPV is $76,358.
What is the most it can invest in working capital and still have a positive net present value?
(Round to the nearest dollar.)
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