TexMex Food Company Is Considering a New Salsa Whose Data

question 21

Multiple Choice

TexMex Food Company is considering a new salsa whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no change in net operating working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other TexMex products and would reduce their pre-tax annual cash flows. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.)

• A) $3,636
• B) $3,828
• C) $4,019
• D) $4,220
• E) $4,431

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Definitions:

Marginal Tax Bracket

The tax rate that applies to the last dollar of the taxpayer's income, influencing incremental income earned or deductions.

Adam Smith

An 18th-century Scottish economist and philosopher, best known for his theories on free market economies and the concept of 'invisible hand' guiding supply and demand.

Government Duties

Financial charges imposed by the government on goods, services, or activities, primarily focused on imports and exports.

Marginal Rates

Rates that apply to the next dollar of taxable income; often used in the context of income tax, where different income levels are taxed at different rates.