Do think the project should be accepted

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Point 1: The company will need to finance some of the cash to fund $17 million in receivables and $14 million in Inventory starting at year zero. The company expects vendors to give free credit on purchases of $15 million (accounts Payable). Add the net cash outflow for working capital to the cash outflow for the plant, equipment and land in year zero. The $17 million for receivables and the $14 million for Inventory are cash outflows. The $15 million for receivables is a cash inflow.

Point 2: Assume that this net working capital is recovered as a cash inflow in year 21. The company still estimates revenues and expenses The company now estimates that it can sell the land in year 21 for $40 million. It will also recover the cash spent on working capital in year 21.

Question 1: Do you think the project should be accepted? What are the pros and cons?

Reference no: EM132490692

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