Poulsen Industries Is Analyzing an Average-Risk Project, and the Following

question 24

Multiple Choice

Poulsen Industries is analyzing an average-risk project, and the following data have been developed.Unit sales will be constant, but the sales price should increase with inflation.Fixed costs will also be constant, but variable costs should rise with inflation.The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value.This is just one of many projects for the firm, so any losses can be used to offset gains on other firm projects.The marketing manager does not think it is necessary to adjust for inflation since both the sales price and the variable costs will rise at the same rate, but the CFO thinks an adjustment is required.What is the difference in the expected NPV if the inflation adjustment is made vs.if it is not made?

• A)$13,286
• B)$13,985
• C)$14,721
• D)$15,457
• E)$16,230

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Definitions:

Strike-Slip Fault

A fault in which the relative movement is essentially horizontal, parallel to the strike of the fault surface.

Normal Fault

A fault in which the hanging wall moves down relative to the footwall.

Reverse Fault

A fault in which the hanging wall moves up relative to the footwall.

Joint

A fracture in a rock where the rock has been pulled apart slightly without significant displacement parallel to the fracture.