A project under consideration by Close Corporation would require a working capital investment of $200,000

Accounting Mar 13, 2021

A project under consideration by Close Corporation would require a working capital investment of $200,000. The working capital would be liquidated at the end of the project's 10-year life. If Close Corporation has an after-tax cost of capital of 10 percent and a marginal tax rate of 30 percent, what is the present value of the working capital cash flow expected to be received in year 10? Present value tables or a financial calculator are required.

1. 1. $36,868
  2. $77,100
  3. $53,970
  4. $23,130

Expert Solution

ANS: B

The return of capital is tax-free.

Use PV of $1 10 years, 10%; Constant = 0.3855 $200,000 * 0.3855 = $77,100

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