Your Company Is Considering a Machine That Will Cost $1,000

question 80

Multiple Choice

Your company is considering a machine that will cost $1,000 at Time 0 and which can be sold after 3 years for $100.To operate the machine, $200 must be invested at Time 0 in inventories; these funds will be recovered when the machine is retired at the end of Year 3.The machine will produce sales revenues of $900/year for 3 years; variable operating costs (excluding depreciation) will be 50 percent of sales.Operating cash inflows will begin 1 year from today (at Time 1) .The machine will have depreciation expenses of $500, $300, and $200 in Years 1, 2,
And 3, respectively.The company has a 40 percent tax rate, enough taxable income from other assets to enable it to get a tax refund from this project if the project's income is negative, and a 10 percent required rate of return.Inflation is zero.What is the project's NPV?

• A)$6.24
• B)$7.89
• C)$8.87
• D)$9.15
• E)$10.41

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Definitions:

Lanham Act

A federal statute in the United States that governs trademarks, service marks, and unfair competition, providing protection for brand identities and combating misleading practices.

Misleading Food Advertisements

Advertising practices that falsely represent the quality, nutritional value, or origin of food products, potentially deceiving consumers.

FDA

The Food and Drug Administration, a U.S. federal agency responsible for regulating food, drugs, medical devices, and cosmetics.

Lanham Act

The primary federal trademark statute in the United States, which provides for the registration of trademarks and offers protection against their infringement.