Bedolla Corporation Is Considering a Capital Budgeting Project That Would

question 111

Multiple Choice

Bedolla Corporation is considering a capital budgeting project that would require investing $160,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $430,000 and annual incremental cash operating expenses would be $310,000. The company's income tax rate is 30% and its after-tax discount rate is 8%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. Use Exhibit 7B-1, to determine the appropriate discount factor(s) using the tables provided.
The net present value of the entire project is closest to:

• A) $317,952
• B) $157,952
• C) $237,440
• D) $224,000

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Definitions:

Economic Sense

The logic or rationale that underpins economic decisions, focusing on efficiency and outcomes in financial terms.

Goodwill

An intangible asset that arises when a business is acquired for more than the fair value of its net identifiable assets, reflecting reputation, brand, and other value not captured by physical assets.

Blue Sky

Pertaining to laws that regulate the offering and sale of securities to protect the public from fraud.

Canadian Corporations

Canadian Corporations are business entities registered and operating under the legal frameworks and regulations of Canada.