Respuesta :
The net present value of the project is $50,000
What is Capital budgeting?
A company's investment initiatives are evaluated as part of the capital budgeting process. One of the methods utilized in this evaluation is the computation of Net Present Value (NPV). This calculation comprises discounting cash flows that arise from starting the project or investment at the beginning stage before the project or investment is launched, using a suitable discount rate.
Solution:
present value = $275,000.
initial investment = $200,000
additional working capital = $25,000.
total investment = $200,000+$25,000
= $225,000
NPV= 275,000-225,000 = 50,000
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The net present value of the project is $50,000
- The net present value of Project Marvel's future cash inflows has already been determined, and the outcome is $275,000
- The cash outflows are described as an initial investment of $200,000 and further working capital of $25,000.
- Therefore, the total cash outflows for the current period would be $225,000.
- Project Marvel has produced a net cash inflow of ($275,000 - $225,000)which is $50,000.
Capital budgeting – what is it?
- The capital budgeting process includes an evaluation of a company's investment efforts.
- The calculation of Net Present Value(NPV). is one of the approaches used in this evaluation
- Using a suitable discount rate, this calculation involves discounting cash flows that result from launching the project or investment at the planning stage before the project or investment is initiated.
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