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

question 124

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 expect the number of units sold to be 7,000 with an upper bound of 8,000 and a lower bound of 6,000, and you expect the variable cost per unit to be $10 per unit with an upper bound of $12.50 and a lower bound of $7.50. Assuming a tax rate of 30%, compute the IRR for the BEST case. Note that salvage is $0, and NWC is $0.

• A) 5%
• B) 12%
• C) 17%
• D) 34%
• E) 74%

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Definitions:

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The systematic investigation into and study of materials, sources, etc., in order to establish facts and reach new conclusions.

New Project

An initiative or plan that is embarked upon for the first time, aiming to achieve specific goals or outcomes.

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A framework or concept that categorizes certain aspects or variables into six distinct layers or stages, often used in organizational, psychological, or developmental contexts.

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