Net working capital is expected to increase by $25,000 in year 5 of a project.If this extra working capital is recovered when the project ends in year 6,what is the effect on the project's net present value,if the cost of capital is 15%?
A) NPV will not be affected because the $25,000 will all be recouped.
B) NPV will increase by $12,429.42.
C) NPV will decrease by $25,000.
D) NPV will decrease by $1,621.23.

Question

Quizplus · Accepted Answer

ΔNPV = −$25,000 / 1.15⁵ + 25,000 / 1.15⁶ = $1,621.23

Net Working Capital Is Expected to Increase by $25,000 in Year