Multiple Choice
A project requires an additional commitment of $100,000 in net working capital in each of years 1 to 4.These extra investments can be recovered in year 5 when the project comes to an end.What is the effect on NPV?
A) NPV is reduced by $100,000.
B) NPV is reduced by the present value of $100,000 discounted at the firm's cost of capital for 4 years.
C) NPV is reduced by the present value of $100,000 discounted at the firm's cost of capital for each of years 1 to 4 minus the discounted value of the $400,000 that is recovered in year 5.
D) No opportunity cost is involved.
Correct Answer:
Verified
Correct Answer:
Verified
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