A company needs an increase in working capital of $20,000 in a project that will last 4 years. The company's tax rate is 30% and its after-tax discount rate is 10%. The present value of the release of the working capital at the end of the project is closest to:
A)$6,000
B)$13,660
C)$9,562
D)$14,000

Question

Quizplus · Accepted Answer

The present value of the release of working capital can be calculated as follows:
PV = $20,000 / (1 + r)^n
where r is the after-tax discount rate and n is the number of years.

PV = $20,000 / (1 + 0.10)^4
PV = $20,000 / 1.4641
PV = $13,659.64

Therefore, the closest answer choice is B) $13,660.

A Company Needs an Increase in Working Capital of $20,000