BASIC INFORMATION: a Three-Year Project Will Cost $60,000 to Construct

question 125

Multiple Choice

BASIC INFORMATION: A three-year project will cost $60,000 to construct. This will be depreciated straight-line to zero over the three-year life. The price per unit sold is $20 and the variable cost per
Unit sold is $10. Fixed costs are $30,000 per year.
In addition to the BASIC INFORMATION, you find that a salvage company will pay you $10,000 for
The assets at the end of year 3. The project will require an investment of $10,000 up front for net
Working capital. If you expect to sell 7,000 units per year, compute the NPV assuming a required
Return of 15% and a tax rate of 30%.

• A) Less than $0
• B) $11,347
• C) $14,416
• D) $18,807
• E) More than $20,000

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