A Project Requires an Initial Investment in Equipment of $90,000

question 28

Multiple Choice

A project requires an initial investment in equipment of $90,000 and then requires an investment in working capital of $10,000 at the beginning (t = 0) . The project is expected to produce sales revenues of $120,000 for three years. Manufacturing costs are estimated to be
60% of the revenues. The assets are depreciated using straight-line depreciation. At the end of the project, the firm can sell the equipment for $10,000. The corporate tax rate is 30% and the cost of capital is 15%. What would the NPV if the discount rate were higher by 10%?

• A) $5648
• B) $3840
• C) -$2735
• D) None of the above

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Definitions:

CS (Conditioned Stimulus)

A stimulus that was neutral but becomes associated with an unconditioned stimulus to elicit a conditioned response in classical conditioning.

Classical Conditioning

A learning process that creates associations between a naturally occurring stimulus and a previously neutral stimulus.

Acquisition

In learning theory, the process of gaining new information and incorporating it into one's knowledge base.

Classical Conditioning

A learning process in which an association is made between a naturally occurring stimulus and a previously neutral stimulus.