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

question 66

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 12%. Calculate the NPV of the project:

• A) 14,418
• B) 8443
• C) -2735
• D) None of the above

---

Definitions:

Uncertainty Avoidance

A cultural dimension that describes the extent to which a society feels uncomfortable with uncertainty and ambiguity.

Hofstede's Dimensions

A framework for cross-cultural communication, developed by Geert Hofstede, that describes the effects of a society's culture on the values of its members and how these values relate to behavior.

Unpredictability

The quality of being unable to be predicted or foreseen, often resulting in uncertainty or variability in outcomes.

Uncertainty Avoidance

A cultural dimension that describes the extent to which people in a society are uncomfortable with ambiguity, risk, and uncertainty in their daily lives.