NPV of a project: working capital

[rbcc]

Hi,

ABC company is considering a project in which an initial working capital investment of $100 will be made at the beginning of the project and is recoverable at close up.ABC faced a tax rate of 35% the appropriate discount rate is 10%. Each asses class is large and contunies after the project terminates. The initial investment is $1 000; annual pre-tax operating cash flow is $500; salvage value is 0; the CCA rate is 30% and the lenght of the project is 5 years.

so for this problem, I'm not sure of the cash flows for the working capital investment, would the present value be like this?

-100 ( initial working capital investment)
and
100/(1.10)^5 ( working capital investment recovered at the end of the project)

I can do the rest of the problem

Thanks
rbcc

 

[tkhunny]

Except for the fact that you did not recover your investment, you used two different values for the beginning capital, you failed to use the tax rate, and the CCA rate was unused, I think you might have it.

I'm thinking a MUCH BETTER problem statement would be a great idea.

 

[rbcc]

you used two different values for the beginning capital

oh sorry the initial investment for the production assets is 1000. They say that the $100.00 is a (separate?) working capital investment that will be recovered at the end of the project.

you failed to use the tax rate, and the CCA rate was unused

the CCA rate would only be for the production assets right? where would the tax rate come in to play? I know it should be applied to the pre-tax operating cash flows of $500 and the tax shield for the production assets...but only there right?

you did not recover your investment

what do you mean?

Thank you for your help

 

[rbcc]

initial investment production assets -1000

 

[rbcc]

I'm thinking a MUCH BETTER problem statement would be a great idea.

this is how my text book does it any further help would be appreciated.

 

[rbcc]

So in general net present value is just the present value of the cash flows right? so then you would take both the initial working capital investment and the recovery of the working capital investment into account then right? Is there some strange wording in the problem that i could clarify??