The Unlimited, a National Retailing Chain, Is Considering an Investment

question 64

Multiple Choice

The Unlimited, a national retailing chain, is considering an investment in one of two mutually exclusive projects. The discount rate used for Project A is 12 percent. Further, Project A costs $15,000, and it would be depreciated using MACRS. It is expected to have an after-tax salvage value of $5,000 at the end of 6 years and to produce after-tax cash flows (including depreciation) of $4,000 for each of the 6 years. Project B costs $14,815 and would also be depreciated using MACRS. B is expected to have a zero salvage value at the end of its 6-year life and to produce after-tax cash flows (including depreciation) of $5,100 each year for 6 years. The Unlimited's marginal tax rate is 40 percent. What risk-adjusted discount rate will equate the NPV of Project B to that of Project A?

• A) 15%
• B) 16%
• C) 18%
• D) 20%
• E) 12%

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Definitions:

Topical Steroid

A type of medication applied to the skin to reduce inflammation and treat conditions like eczema or psoriasis.

Moisturizing Lotion

A topical preparation used to hydrate and soften the skin, helping to prevent dryness and irritation.

Oral Thrush

A fungal infection in the mouth, characterized by white patches on the tongue and inside the cheeks.

Antiseptic Mouthwash

A liquid solution used in oral hygiene to kill bacteria and other microorganisms in the mouth, reducing infection and bad breath.