Working capital and capital budgeting

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Reference no: EM131537062

Working capital and capital budgeting.Farbuck's Tea Shops is thinking about opening another tea shop. The incremental cash flow? (not including the working capital? investment) for the first five years is as? follows:

Initial capital costequals=?$3,500,000

Operating cash flow for each year equals=?$1,000,000

Recovery of capital assets after five years equals=?$260,000

The hurdle rate for this project is 12?%. If the initial cost of working capital is $490,000 for items such as? teapots, teacups,? saucers, and? napkins, should? Farbuck's open this new shop if it will be in business for only five? years? What is the most it can invest in working capital and still have a positive net present? value?

Should? Farbuck's open this new shop if it will be in business for only five? years? ?(Select the best? response.)

A.Yes. Farbuck's should open the new shop because the project's NPV is $ 38329.

B.No. Farbuck's should not open the new shop because the project's NPV is −$38,329.

C.No. Farbuck's should not open the new shop because the project's NPV is −$40,346.

D.Yes.Farbuck's should open the new shop because the project's NPV is $40,346.

Reference no: EM131537062

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