How does net working capital affect the NPV of a five-year project if working capital is expected to increase by $25,000 and the firm has a 15% cost of capital? A)NPV will increase by $9,322 B)NPV will increase by $12,571 C)NPV will decrease by $25,000 D)NPV will decrease by $12,571 t_o-$25,000 outflow T₅-inflow, which has a present value of $12,429.42 (25,000/1.15⁵)

Question

Quizplus · Accepted Answer

The increase in working capital is an initial outflow, reducing NPV. The present value of the inflow at the end of the project is $12,429.42, resulting in a net decrease of $12,571 in NPV.

How Does Net Working Capital Affect the NPV of a Five-Year