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External Financing / Net Present Value of Project

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Frisch Fish Corporation expects net income next year to be $600000. Inventory and accounts receivable will have to be increased by $300000 to accommodate this sales level. Frisch will pay dividends of $400000. How much external financing will Frisch Fish need assuming no organically generated increase in liabilities?

Stone, Inc., is evaluating a project with an initial cost of $8450. Cash inflows are expected to be $1000, $1000, and $1000 in the three years over which the project will produce cash flows. If the discount rate is 13 percent, what is the net present value of the project?

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Solution Summary

The solution explains two questions - one relating to the amount of external financing needed and the second relating to net present value of a project.

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1. External funds needed = Increase in assets - increase in spontaneous liabilities - increase in retained earnings
Assets increase by $300,000. This is the total requirement of funds, to invest in ...

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