Asked by
Leoniella Santiago
on Nov 19, 2024
Verified
Some investment projects require that a company increase its working capital. Under the net present value method, the investment and eventual recovery of working capital should be treated as:
A) an initial cash outflow.
B) a future cash inflow.
C) both an initial cash outflow and a future cash inflow.
D) irrelevant to the net present value analysis.
Working Capital
The difference between a company’s current assets and current liabilities, indicating its short-term financial health and operational efficiency.
Net Present Value
A calculation used to assess the profitability of an investment, considering the present value of its future cash flows minus the initial investment.
- Understand the treatment of working capital in investment project evaluations.
- Differentiate among various methods for assessing investments, including the Profitability Index, Internal Rate of Return (IRR), and Net Present Value (NPV), and how they are used to prioritize investment projects.
Verified Answer
CF
Learning Objectives
- Understand the treatment of working capital in investment project evaluations.
- Differentiate among various methods for assessing investments, including the Profitability Index, Internal Rate of Return (IRR), and Net Present Value (NPV), and how they are used to prioritize investment projects.