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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: Click on the icon o in order to copy its content into a spreadsheet Initial capital cost = $3,500,000 Operating cash flow for each year =$1,000,000 Recovery of capital assets after five years = $280,000 The hurdle rate for this project is 13%. If the initial cost of working capital is $520,000 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.) O A. Yes. Farbuck's should open the new shop because the project's NPV is $68,561. O B. Yes. Farbuck's should open the new shop because the project's NPV is $61,705. O C. No. Farbuck's should not open the new shop because the project's NPV is - $68,561. O D. No. Farbuck's should not open the new shop because the project's NPV is - $61,705.

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: Click on the icon o in order to copy its content into a spreadsheet Initial capital cost = $3,500,000 Operating cash flow for each year =$1,000,000 Recovery of capital assets after five years = $280,000 The hurdle rate for this project is 13%. If the initial cost of working capital is $520,000 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.) O A. Yes. Farbuck's should open the new shop because the project's NPV is $68,561. O B. Yes. Farbuck's should open the new shop because the project's NPV is $61,705. O C. No. Farbuck's should not open the new shop because the project's NPV is - $68,561. O D. No. Farbuck's should not open the new shop because the project's NPV is - $61,705.

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 5E: Cash payback period for a service company Janes Clothing Inc. is evaluating two capital investment...
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Chapter 13, Question 9. Attached is a similar question with answers. Please answer the same two parts for the new question

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: Click on the icon a in order to copy its content into a spreadsheet Initial capital cost = $3,500,000 Operating cash flow for each year = $1,000,000 Recovery of capital assets after five years = $280,000 The hurdle rate for this project is 13%. If the initial cost of working capital is $520,000 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.) O A. Yes. Farbuck's should open the new shop because the project's NPV is $68,561. O B. Yes. Farbuck's should open the new shop because the project's NPV is $61,705. O C. No. Farbuck's should not open the new shop because the project's NPV is - $68,561. O D. No. Farbuck's should not open the new shop because the project's NPV is - $61,705.
Transcribed Image Text: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: Click on the icon a in order to copy its content into a spreadsheet Initial capital cost = $3,500,000 Operating cash flow for each year = $1,000,000 Recovery of capital assets after five years = $280,000 The hurdle rate for this project is 13%. If the initial cost of working capital is $520,000 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.) O A. Yes. Farbuck's should open the new shop because the project's NPV is $68,561. O B. Yes. Farbuck's should open the new shop because the project's NPV is $61,705. O C. No. Farbuck's should not open the new shop because the project's NPV is - $68,561. O D. No. Farbuck's should not open the new shop because the project's NPV is - $61,705.
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: Click on the icon a in order to copy its content into a spreadsheet Initial capital cost = $3,500,000 Operating cash flow for each year =$1,000,000 Recovery of capital assets after five years = $270,000 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 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.) O A. No. Farbuck's should not open the new shop because the project's NPV is - $41,419. O B. Yes. Farbuck's should open the new shop because the project's NPV is $41,419. Oc. Yes. Farbuck's should open the new shop because the project's NPV is $46,021. O D. No. Farbuck's should not open the new shop because the project's NPV is - $46,021. What is the most it can invest in working capital and still have a positive net present value? $ 596,388 (Round to the nearest dollar.)
Transcribed Image Text: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: Click on the icon a in order to copy its content into a spreadsheet Initial capital cost = $3,500,000 Operating cash flow for each year =$1,000,000 Recovery of capital assets after five years = $270,000 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 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.) O A. No. Farbuck's should not open the new shop because the project's NPV is - $41,419. O B. Yes. Farbuck's should open the new shop because the project's NPV is $41,419. Oc. Yes. Farbuck's should open the new shop because the project's NPV is $46,021. O D. No. Farbuck's should not open the new shop because the project's NPV is - $46,021. What is the most it can invest in working capital and still have a positive net present value? $ 596,388 (Round to the nearest dollar.)
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