Suppose a Six-Year Project Requires an Initial Capital Investment of $425,000

question 34

Multiple Choice

Suppose a six-year project requires an initial capital investment of $425,000 and an initial net working capital investment of $50,000.The project is expected to provide operating revenue of $270,000 per year.The associated operating costs are expected to be $130,000 per year.The capital asset belongs to Class 9 and has a CCA rate of 30%.The asset is expected to sell for $40,000 when the project terminates.Assume the asset class remains open when the asset is sold and the accelerated investment incentive is applicable for CCA in year 1.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 cost of capital were 10%?

• A)NPV decreases by 32.68%
• B)NPV increases by 20.49%
• C)NPV increases by 32.68%
• D)NPV decreases by 20.49%

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Definitions:

Strategies

Planned methods or actions for achieving specific goals.

Encounter

Encounter typically refers to an unexpected or casual meeting between individuals or groups, often leading to a confrontation or negotiation.

Sensitive

Being easily affected by external forces or stimuli; often refers to issues or subjects requiring careful handling.

Deft Touch

A deft touch refers to the skillful and subtle handling of a situation, often implying a gentle or nuanced approach.