A project requires $1.08 million of new equipment that will be depreciated strai

Question

A project requires $1.08 million of new equipment that will be depreciated straight-line to zero over the project’s 4-year life. The equipment is expected to be sold at the end of the project for 33 percent of its original cost. Net working capital equal to 12 percent of sales is required and will be recouped at the end of the project. Annual sales are projected at $487,500 with annual costs of $302,400. What is the recovery amount attributable to net working capital at the end of the project? Multiple Choice $25,555 $22,212 $40,100 $58,500 $42,550

Explanation / Answer

Net working capital initially required=12%*Annual Sales

=(0.12*$487500)

which is equal to

=$58500

This amount will be recovered at end of the project.

Hence recovery amount attributable to net working capital at the end of the project =$58500.

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