DeVault Services Recently Hired You as a Consultant to Help

question 57

Multiple Choice

DeVault Services recently hired you as a consultant to help with its capital budgeting process.The company is considering a new project whose data are shown below.The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value.No new working capital would be required.Revenues and other operating costs are expected to be constant over the project's 3-year life.What is the project's NPV? $$\begin{array} { l r } \text { Risk-adjusted cost of capital } & 10.0 \% \\\text { Net investment cost (depreciable basis) } & \$ 65,000 \\\text { Straight-line deprec. rate } & 33.3333 \% \\\text { Sal es revenues, each year } & \$ 65,500 \\\text { Operating costs (excl. deprec.) , each year } & \$ 25,000 \\\text { Tax rate } & 25.0 \%\end{array}$$

• A) $34,515
• B) $36,331
• C) $38,243
• D) $40,256
• E) $42,375

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Definitions:

Potential Benefit

The prospective advantage or gain that may be realized from a specific action or decision, often considered in planning and analysis.

Probability

A quantitative assessment of an event's probability, given as a number from 0 to 1.

Choosing

The act of selecting from a number of alternatives or possibilities.

Day

A unit of time equivalent to 24 hours, representing the period it takes for the Earth to complete one full rotation on its axis.