Louie's Leisure Products Is Considering a Project Which Will Require

question 47

Multiple Choice

Louie's Leisure Products is considering a project which will require the purchase of €1.4 million in new equipment.The equipment will be depreciated straight-line to a zero book value over the 7-
Year life of the project.Louie's expects to sell the equipment at the end of the project for 20% of its
Original cost.Annual sales from this project are estimated at €1.2 million.Net working capital equal
To 20% of sales will be required to support the project.All of the net working capital will be
Recouped at the end of the project.The firm desires a minimal 14% rate of return on this project.The
Tax rate is 34%.What is the amount of the after-tax salvage value of the equipment?

• A)€47,600
• B)€72,000
• C)€95,200
• D)€144,000
• E)€184,800

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Definitions:

Aggregate Demand Curve

A graphical representation showing the total demand for goods and services within an economy at various price levels.

Price Level

A measure of the average prices of goods and services in the economy at a specific time point.

Real GDP

The total value of all goods and services produced by a country adjusted for inflation, representing the economic output in constant prices.

Classical Economists

Economists from the 18th and 19th centuries who focused on ideas of free markets, supply and demand, and the role of government in the economy.