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What effect will that have in calculating npv

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Question - A company is to decide on investing $3700 in a new production line and a working capital of $1000. The projected net cash inflows for the products are $2000 per annum for 5 years at current price levels. At the end of 5 years it's is projected that the equipment will have a terminal value of $1200 and that the elimination of working capital will provide an inflow which is 1/2 to its initial book value.

Explain what is meant by below statement "the elimination of working capital will provide an inflow which is 1/2 to its initial book value" What effect will that have in calculating NPV?

Reference no: EM133081187

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