Able Company has a possible project. It takes an initial investment of $$2,500,$ and will produce ten years of net cash flows of $$1,000$ each year before taxes. Taxes are assessed at $30$ percent. The time value of money is $10$ percent. We will compute the present value of the project under two circumstances.

Suppose the $$2,500$ initial investment is money that we put aside for working capital. Working capital includes money we use in a cycle to pay vendors while we wait for collections from customers. At the end of the ten years, we can recover the $$1,000.$ The $$1,000$ is not deductible for tax purposes and not taxable when we recover it$.$

Suppose the $$2,500$ initial investment is investment in equipment that will be depreciated for tax purposes. The depreciation is taken as accelerated depreciation of $$500$ for five years and no depreciation for the second five years.

Required:

A$.$ Find the net present value of the projects. Show your work.

Check figures:

$$2,765$

$$2,370$