BASIC INFORMATION: a Three-Year Project Will Cost $60,000 to Construct

question 209

Multiple Choice

BASIC INFORMATION: A three-year project will cost $60,000 to construct. This will be depreciated straight-line to zero over the three-year life. The price per unit sold is $20 and the variable cost per unit sold is $10. Fixed costs are $30,000 per year.

In addition to the BASIC INFORMATION, you find that a salvage company will pay you $10,000 for the assets at the end of year 3. The project will require an investment of $10,000 up front for net working capital. If you expect to sell 7,000 units per year, compute the NPV assuming a required return of 15% and a tax rate of 30%.

• A) Less than $0
• B) $11,347
• C) $14,416
• D) $18,807
• E) More than $20,000

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Definitions:

Liver Enlargement

An increase in the size of the liver, which can be indicative of various diseases or conditions affecting liver health.

Chyme

The mixture of partially digested food and digestive secretions found in the stomach and small intestines during digestion of a meal.

Semiliquid State

A state of matter that has properties between those of a liquid and those of a solid, often demonstrating partial flow.