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

question 69

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 recovery amount attributable to net working capital at the end of the
Project?

• A)€55,200
• B)€81,600
• C)€159,600
• D)€240,000
• E)€424,800

---

Definitions:

Matched by Employer

Pertains to contributions or payments, typically toward FICA taxes or retirement funds, that an employer duplicates for an employee.

Contingent Liability

A potential financial obligation that may occur or become payable in the future, depending on the outcome of a specific event.

Reasonably Possible

A term used in accounting and law to describe a situation or outcome that, while not certain, is more than a remote possibility.

Estimable

Capable of being estimated or appraised, often used in finance and accounting to describe assets or liabilities that can be accurately assessed.