Road Hawk Inc

question 25

Multiple Choice

Road Hawk Inc. is adding a new production line that will cost $720,000. The line will be depreciated on a straight-line basis over a 7-year period and will generate net cash flows of $160,000 in each of the 7 years. At the end of the project, it is expected the line can be sold as scrap for $10,000. If the firm's marginal tax rate is 40% and its required rate of return is 14%, what is the net present value of this project?

• A) $70,091
• B) -$27,920
• C) $64,091
• D) -$31,520

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Definitions:

Product Variety

The range of different products or services offered by a company or available in a market, catering to diverse customer tastes and needs.

Allocative Efficiency

A state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.

Monopolistically Competitive

A competitive framework where numerous companies offer goods that are alike but not the same, leading to competition revolving around quality, price, and brand recognition.

Purely Competitive

An economic setup distinguished by the presence of numerous small companies, an identical product, and extremely simple processes for entering or leaving the market.