A New Molding Machine Is Expected to Produce Operating Cash

question 76

Multiple Choice

A new molding machine is expected to produce operating cash flows of $109,000 a year for 4 years. At the beginning of the project, inventory will decrease by $8,700, accounts receivables will increase by $9,500, and accounts payable will decrease by $5,200. All net working capital will be recovered at the end of the project. The initial cost of the molding machine is $319,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. No bonus depreciation will be taken. The equipment will be salvaged at the end of the project creating an aftertax cash inflow of $51,600. What is the net present value of this project given a required return of 14.2 percent?

• A) $25,162.45
• B) $24,061.87
• C) $28,336.01
• D) $22,863.16
• E) $27,925.54

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Definitions:

Good

An item or service that satisfies a want or need and is available for sale or exchange in the market.

Maximizing Utility

The economic principle that individuals or firms seek to achieve the highest level of satisfaction or benefit from their choices.

Marginal Utility

The increased enjoyment or value gained by a consumer from consuming an extra unit of a good or service.

Price

The amount of money required to purchase a good or service, which is determined by supply and demand.