Repeat Business is considering launching a new line of repeating software. The project has the following parameters: • Product life cycle of 9 years. • An increase in net working capital of $5.0 million in year 0, which will be recovered at the end of year 9. • Repeat Business' marginal tax rate is 40%. • Repeat Business' cost of capital is 9% effective annual What is the impact on NPV if the net working capital increase is $7.5 million (instead of $5.0 million) in year 0? The working capital will still be recovered at the end of year 9. О A) It will increase the NPV of the project B) It will not affect the NPV of the project OC) It is impossible to determine the effect on the NPV of the project. D) It will decrease the NPV of the project
Repeat Business is considering launching a new line of repeating software. The project has the following parameters: • Product life cycle of 9 years. • An increase in net working capital of $5.0 million in year 0, which will be recovered at the end of year 9. • Repeat Business' marginal tax rate is 40%. • Repeat Business' cost of capital is 9% effective annual What is the impact on NPV if the net working capital increase is $7.5 million (instead of $5.0 million) in year 0? The working capital will still be recovered at the end of year 9. О A) It will increase the NPV of the project B) It will not affect the NPV of the project OC) It is impossible to determine the effect on the NPV of the project. D) It will decrease the NPV of the project
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Repeat Business is considering launching a new line of repeating software. The
project has the following parameters:
• Product life cycle of 9 years.
• An increase in net working capital of $5.0 million in year 0, which will be
recovered at the end of year 9.
•
Repeat Business' marginal tax rate is 40%.
• Repeat Business' cost of capital is 9% effective annual
What is the impact on NPV if the net working capital increase is $7.5 million (instead
of $5.0 million) in year 0? The working capital will still be recovered at the end of
year 9.
О
A) It will increase the NPV of the project
B) It will not affect the NPV of the project
OC) It is impossible to determine the effect on the NPV of the project.
D) It will decrease the NPV of the project
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