Question: Layla's Distribution Co. is considering a project which will require the purchase of $1.8 million in new equipment. The equipment will be depreciated straight-line to
Layla's Distribution Co. is considering a project which will require the purchase of $1.8 million in new equipment. The equipment will be depreciated straight-line to a zero book value over the 5-year life of the project. Layla's expects to sell the equipment at the end of the project for 10 percent of its original cost. Annual sales from this project are estimated at $1.3 million. Net working capital equal to 30 percent of sales will be required to support the project. All of the net working capital will be recouped at the end of the project. The firm desires a minimal 15 percent rate of return on this project. The tax rate is 34 percent. What is the recovery amount attributable to net working capital at the end of the project?
| $130,000 | ||
| $260,000 | ||
| $360,000 | ||
| $390,000 | ||
| $540,000 |
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