Ecogen Is Considering the Purchase of Some New Equipment That

question 18

Multiple Choice

Ecogen is considering the purchase of some new equipment that will cost $340,000 installed. The equipment will produce a product that must be FDA approved and this will require at least a year. Net cash flow in Year 1 will be a negative $110,000 but is expected to be a positive $50,000 in Year 2. Net cash flows will be $150,000, $240,000, and $330,000 in the next 3 years. At the end of 5 years the equipment and the product will be obsolete. If the firm's marginal tax rate is 40% and their costs of capital is 15%, should they invest in the new equipment?

• A) Yes, NPV = $2,090
• B) Yes, NPV = $12,390
• C) No, NPV = -$63,210
• D) No, NPV = -$12,210

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Definitions:

Canalized

A term referring to traits that are strongly influenced by genetic factors and less affected by environmental conditions.

Species-Typical Characteristics

Traits or behaviors that are common and normative within a particular species.

Language Acquisition

The process by which humans acquire the capacity to perceive, produce, and use words to understand and communicate.

Cultural Factors

Cultural factors include the diverse beliefs, behaviors, norms, and values shared by members of a culture that influence their perceptions and interactions with the world.