A Project Requires an Initial Investment in Equipment of $90,000

question 39

Multiple Choice

A project requires an initial investment in equipment of $90,000 and then requires an initial investment in working capital of $10,000 (at t = 0) . You expect the project to produce sales revenue of $120,000 per year for three years. You estimate manufacturing costs at 60 percent of revenues. (Assume all revenues and costs occur at year-end [i.e., t = 1, t = 2, and t = 3]) . The equipment depreciates using straight-line depreciation over three years. At the end of the project, the firm can sell the equipment for $10,000. The corporate tax rate is 21 percent and the cost of capital is 16.5 percent. Calculate the NPV of the project.

• A)$9,826
• B)$3,840
• C)-$2,735
• D)$4,848

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