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You are working on a bid for a contract. Thus far, you have determined that you...

You are working on a bid for a contract. Thus far, you have determined that you will need $156,000 for fixed assets and another $32,000 for net working capital at Time 0. You have also determined that you can recover $68,400 after-tax for the combined fixed assets and net working capital at the end of the 4-year project. What must be the annual operating cash flow each year, if the IRR of the project is 16 percent ?

Select one:

a. $48,929.74

b. $55,200.16

c. $46,666.67

d. $53,686.06

e. $50,725.50

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Answer #1

NPV = present value of cash inflows – present value of cash outflows

Let the annual operating cash flow each year be x

0 = -156,000-32,000 + x*PVAF(16%,4 years) + 68,400*PVF(16%, 4 years)

0 = -188,000 + x*2.798 + 68,400*0.552

0 = -150,243.2 = 2.798x

X = $53,696.6

= $53,686.06 (approx.)

i.e. d

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