Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 6, Problem 5PS
Working capital The following table tracks the main components of working capital over the life of a four-year project.
Calculate net working capital and the
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the following table tracks the main components of net working capital over the life of a 4-year project. calculate the investment in net working capital in year 3. in the presented answers, a negative number represents a cash outflow (additional investment) and a positive number represents a cash inflow (recapture of a previous investment).
year 1
year 2
year 3
year 4
year 5
Accounts receivable
0
156,000
231,000
196,000
0
inventory
78,000
133,000
133,000
98,000
0
accounts payable
26,500
51,500
53,000
36,500
0
Explain why net operating working capital is included in a capital budgeting analysis andhow it is recovered at the end of a project’s life.
The following table tracks the main components of working capital over the life of a four-year project.
Accounts receivable
Inventory
Accounts payable
Net working capital
Cash flows
2019
2019
0
95,000
35,000
2021
2020
2022
190,000 265,000 230,000
150,000 150,000 115,000
60,000 70,000 45,000
Calculate net working capital and the cash inflows and outflows due to investment in working capital.
(Negative answers should be indicated by a minus sign.)
2020
2021
2023
0
0
0
2022
2023
Chapter 6 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 6 - Cash flows Which of the following should be...Ch. 6 - Real and nominal flows Mr. Art Deco will be paid...Ch. 6 - Cash flows True or false? a. A projects...Ch. 6 - Depreciation How does the PV of depreciation tax...Ch. 6 - Working capital The following table tracks the...Ch. 6 - Prob. 6PSCh. 6 - Prob. 7PSCh. 6 - Mutually exclusive investments and project lives...Ch. 6 - Replacement decisions Machine C was purchased five...Ch. 6 - Prob. 10PS
Ch. 6 - Prob. 12PSCh. 6 - Working capital Each of the following statements...Ch. 6 - Depreciation Ms. T. Potts, the treasurer of Ideal...Ch. 6 - Project NPV and IRR A project requires an initial...Ch. 6 - Project NPV A widget manufacturer currently...Ch. 6 - Project NPV Marsha Jones has bought a used...Ch. 6 - Project NPV United Pigpen is considering a...Ch. 6 - Project NPV Hindustan Motors has been producing...Ch. 6 - Equivalent annual cash flows As a result of...Ch. 6 - Prob. 25PSCh. 6 - Replacement decisions Hayden Inc. has a number of...Ch. 6 - Prob. 27PSCh. 6 - Prob. 28PSCh. 6 - Prob. 29PSCh. 6 - Prob. 30PSCh. 6 - The cost of excess capacity The presidents...Ch. 6 - Effective tax rates One measure of the effective...Ch. 6 - Equivalent annual costs We warned that equivalent...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Estimate the required net operating working capital (NOWC) for each year and the cash flow due to changes in NOWC.arrow_forwardWhich of the following methods of capital budgeting uses the average annual profits for evaluation of projects? a. Accounting Rate of return b. Internal rate of return c. Net present value d. Payback periodarrow_forwardManjiarrow_forward
- The following table tracks the main components of working capital over the life of a four-year project. 2021 2022 2023 2024 2025 Accounts receivable 0 174,000 249,000 214,000 0 Inventory 87,000 142,000 142,000 107,000 0 Accounts payable 31,000 56,000 62,000 41,000 0 Calculate net working capital and the cash inflows and outflows due to investment in working capital.arrow_forwardBelow are expected current assets and current liabilities (in million dollars) of a new project. Year 0 1 2 3 4 Inventory 12 16 17 18 14 Accounts payable 5 2 7 9 6 What is cash flow as a result of change in net working capital at year 2?arrow_forwardEXERCISE 1: PROFIT FOR THE YEAR AND CASH FLOW With the following information, calculate the project's (1) profit for the year, and (2) cash flow: operating profit ($200,000), capital cost allowance ($50,000), other expenses ($100,000), and income tax rate (40%).arrow_forward
- Consider the following project-balance profiles for proposed investment projects, where the project-balance figures are rounded to the nearest dollar: (a) Compute the net present worth of each investment.(b) Determine the project balance at the end of period 2 for Project C ifA2 = $500.(c) Determine the cash flows for each project.(d) Identify the net future worth of each project.arrow_forwardThe following table tracks the main components of working capital over the life of a four-year project. 2024 2025 0 194,000 0 97,000 36,000 0 Accounts receivable Inventory Accounts payable Net working capital Cash flows 2021 2021 0 77,000 26,000 2022 154,000 132,000 51,000 Calculate net working capital and the cash inflows and outflows due to investment in working capital. Note: Negative answers should be indicated by a minus sign. 2023 229,000 132,000 52,000 2022 2023 2024 2025arrow_forwardAverage Rate of Return Method, Net Present Value Method, and Analysis The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows: Warehouse Tracking Technology Year Income fromOperations Net CashFlow Income fromOperations Net CashFlow 1 $58,000 $183,000 $122,000 $293,000 2 58,000 183,000 93,000 247,000 3 58,000 183,000 46,000 174,000 4 58,000 183,000 20,000 119,000 5 58,000 183,000 9,000 82,000 Total $290,000 $915,000 $290,000 $915,000 Each project requires an investment of $580,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890…arrow_forward
- Explain how to find the value of a capital budgeting project given its cost, its expected annualnet cash flows, its life, and its cost of capital.arrow_forwardPlease answer the question Minimum 150 words Why the short-term source of capital should be matched with the working capital ?arrow_forwardCalculating IRR Compute the internal rate of return for the cash flows of the following two projects: Year Project A Project B 0 -$7,300 -$4,390 1 3, 940 2,170 2 3,450 2,210 3 2,480 1,730arrow_forward
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