Solved

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

question 56

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 and also recover the investment in net working capital. The corporate tax rate is 21 percent and the cost of capital is 15 percent. What is the NPV of the project if the revenues were higher by 10 percent and the costs were 65 percent of the revenues?

Definitions:

Function Morphemes

Represent the smallest grammatical units attached to words to convey grammatical relationships or meanings, such as prefixes, suffixes, and infixes.

Nonsense Words

Strings of letters that do not follow standard language rules or have meaning in a known language, often used in research to study learning and perception of language.

Memorize

The process of committing information to memory for retrieval at a later time, involving techniques to enhance encoding and recall.

Definitional Theory

A conceptual framework centered on defining terms and concepts using precise and specific criteria to facilitate clear understanding and communication.