FIN 419 Inspiring Minds/uophelp.com FIN 419 Inspiring Minds/uophelp.com | Page 3

·
Initial capital cost = $3,500,000 Operating cash flow for each
year = $1,000,000 Recovery of capital assets after five years =
$250,000
The hurdle rate for this project is 12%. If the initial cost of
working capital is $500,000 for items such as teapots, teacups,
saucers, and napkins, should Farbuck’s open this new shop if it
will be in business for only five years? What is the most it can
invest in working capital and still have a positive net present
value?
Chapter 13 Problem 18
Working capital and capital budgeting. Working capital
investment is 25% of the anticipated first year sales for Wally’s
Waffle House. The first-year sales are currently projected at
$4,300,000. The incremental cash flow (not including working
capital investment) is
·
Initial cash flow = $13,700,000 outflow Cash flow years 1
through 10 = $2,850,000
What is the internal rate of return of the ten-year project with
working capital factored into the cash flow? What is the net
present value at a 15% weighted average cost of capital? What is
the maximum investment in working capital for an acceptable
project with a 15% weighted average cost of capital?