Thornley Machines Is Considering a 3-Year Project with an Initial

question 55

Multiple Choice

Thornley Machines is considering a 3-year project with an initial cost of €618,000.The project will not directly produce any sales but will reduce operating costs by €265,000 a year.The equipment
Is depreciated straight-line to a zero book value over the life of the project.At the end of the project
The equipment will be sold for an estimated €60,000.The tax rate is 34%.The project will require
€23,000 in extra inventory for spare parts and accessories.Should this project be implemented if
Thornley's requires a 9% rate of return? Why or why not?

• A)No; The NPV is -€2,646.00.
• B)Yes; The NPV is €27,354.00.
• C)Yes; The NPV is €32,593.78.
• D)Yes; The NPV is €43,106.54.
• E)Yes; The NPV is €196,884.40.

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Definitions:

Public Choice

A branch of economics that studies the decision-making processes of government entities and its impact on economic policy.

Regulatory Capture

A situation where regulatory agencies are dominated by the interests of the industries they are supposed to regulate, rather than serving the public interest.

Special-Interest Effect

The scenario where a small group gains significant benefits from a public policy or action, often at the expense of the larger population.

Lobbyists

Individuals or organizations that attempt to influence governmental policies and decisions in favor of a specific cause or interest they represent.