The Unlimited, a National Retailing Chain, Is Considering an Investment

question 61

Multiple Choice

The Unlimited, a national retailing chain, is considering an investment in one of two mutually exclusive projects.The discount rate used for Project A is 12 percent.Further, Project A costs R15,000, and it would be depreciated using MACRS.It is expected to have an after-tax salvage value of R5,000 at the end of 6 years and to produce after-tax cash flows (including depreciation) of R4,000 for each of the 6 years.Project B costs R14,815 and would also be depreciated using MACRS.B is expected to have a zero salvage value at the end of its 6-year life and to produce after-tax cash flows (including depreciation) of R5,100 each year for 6 years.The Unlimited's marginal tax rate is 40 percent.What risk-adjusted discount rate will equate the NPV of Project B to that of Project A?

• A) 15%
• B) 16%
• C) 18%
• D) 20%
• E) 12%

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Definitions:

Interpersonal Therapy

A form of psychotherapy that focuses on improving interpersonal relationships and communication patterns to help resolve mood disorders and emotional stress.

Self-Actualization

According to Maslow, the point that is seldom reached at which people have sufficiently satisfied the lower needs and achieved their full human potential.

Latent Content

In psychoanalysis, the hidden psychological meaning of a dream, as opposed to the manifest content, which is the dream's storyline.

Manifest Content

In psychoanalytic theory, it refers to the surface level and obvious parts of a dream that the dreamer remembers upon waking.