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

question 53

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 cost of capital. 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:

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A concept often found in navigation and spatial orientation, traditionally referring to up, down, left, right, forward, and backward.

Complex Tradition

A set of beliefs, rituals, and practices that have developed and evolved over a long period, often within a specific community or society.

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The origin of something or the place where something comes from.

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The daily event where the sun appears or becomes visible on the horizon in the morning, signifying the beginning of the day.