Suppose a Seven-Year Project Requires an Initial Capital Investment of $475,000

question 111

Multiple Choice

Suppose a seven-year project requires an initial capital investment of $475,000 and an initial net working capital investment of $25,000.The project is expected to provide operating revenue of $350,000 per year.The associated operating costs are expected to be $150,000 per year.The capital asset belongs to Class 8 and has a CCA rate of 20%.The asset is expected to sell for $36,000 when the project ends.Assume the asset class remains open after the asset is sold and the half-year rule applies in the first year.The firm's marginal tax rate is 40% and cost of capital is 8%.What impact would it have on the project's NPV if the operating costs increase by 5%?

• A)NPV decreases by 8.22%
• B)NPV decreases by 8.66%
• C)NPV decreases by 8.96%
• D)NPV decreases by 10.96%

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Definitions:

Theta Waves

A type of brainwave pattern associated with sleep, deep relaxation, and certain stages of memory processing, typically in the frequency range of 4–8 Hz.

Beta Waves

Brainwave patterns associated with active, alert consciousness and cognitive engagement.

Suprachiasmatic Nucleus

A region of the brain in the hypothalamus responsible for controlling circadian rhythms.

Pineal Gland

A small endocrine gland in the brain that produces melatonin, a hormone that regulates sleep-wake cycles and seasonal biological rhythms.