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+--- Thread: NPV with WC (/showthread.php?tid=9747)
NPV with WC - faisal_ali - 04-08-2011
As salam o alaikum,
i know this is very simple and easy question but in my solution book there is a little problem so just wanna check my concepts.... whether i m right or not .........
Question
Ghosh Ltd is considering expanding its business and has to decide between taking on Project A or
Project B. Both projects have a life of four years. Equipment is expected to have no scrap value.
Other information about the projects is as follows
Project A Project B
Initial outl ay $150 000 $140 000
Annual s ales $100 000 $120 000
Annual purchases $40 000 $65 000
Other costs as a percentage of sales 8% for A 5% for B
Increase in working capital $10 000 $18 000
Ghosh Ltd uses a cost of capital of 10%. Discounting factors at 10% are as follows
Year 1 0.909
Year 2 0.826
Year 3 0.751
Year 4 0.683
Using a cost of capital of 10% Project B has a net present value of $15 281.
cALCULATE NPV of PROJECT A....