A Project Has an Initial Cost of $46,000 for Equipment

question 186

Multiple Choice

A project has an initial cost of $46,000 for equipment, which will be depreciated straight-line to zero over the four-year life of the project. There is no salvage value on the equipment. No working capital is required. Sales are estimated at 10,000 units at a selling price of $22.50 per unit. Variable costs are $14.75 and fixed costs are $56,500. The tax rate is 34% and the required rate of return is 10%. For every $1 increase in the variable cost per unit the net present value will:

• A) Decrease by $20,922.
• B) Decrease by $10,593.
• C) Decrease by $264.
• D) Increase by $264.
• E) Increase by $10,593.

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