A Firm Is Considering Purchasing a New Machine, Which Costs

question 115

Multiple Choice

A firm is considering purchasing a new machine, which costs $500,000 and has a six-year life, a CCA rate of 30%, and an expected salvage value of $45,000.The project will generate sales revenue of $200,000 in the first year, which will grow at 5% per year in the subsequent years.Variable costs will be $80,000 for the first year, which will grow at 7% per year.The firm's marginal tax rate is 35% and required return is 10%.What is the project's NPV?

• A)$12,264
• B)$25,376
• C)$497,546
• D)$519,351

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Definitions:

Maturation

The process of development and growth, either physically or mentally, reaching a stage of full or advanced development.

Attractiveness

The quality of being appealing or pleasing in appearance to others.

Flynn Effect

The observed substantial and long-term increase in both fluid and crystallized intelligence test scores measured in many parts of the world over the 20th century.

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