Your Company Is Considering a Machine That Will Cost R1,000

question 2

Multiple Choice

Your company is considering a machine that will cost R1,000 at Time 0 and which can be sold after 3 years for R100.To operate the machine, R200 must be invested at Time 0 in inventories; these funds will be recovered when the machine is retired at the end of Year 3.The machine will produce sales revenues of R900/year for 3 years; variable operating costs (excluding depreciation) will be 50 percent of sales.Operating cash inflows will begin 1 year from today (at Time 1) .The machine will have depreciation expenses of R500, R300, and R200 in Years 1, 2, and 3, respectively.The company has a 40 percent tax rate, enough taxable income from other assets to enable it to get a tax refund from this project if the project's income is negative, and a 10 percent required rate of return.Inflation is zero.What is the project's NPV?

• A) R6.24
• B) R7.89
• C) R8.87
• D) R9.15
• E) R10.41

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Definitions:

Unconditioned Stimulus

A stimulus that naturally and automatically triggers a response without prior learning or conditioning.

Drug Tolerance

The reduced effectiveness of a drug as a result of the repeated use of the drug.

Supporting Evidence

Information, data, or facts that underpin and reinforce a theory, hypothesis, or belief.

Unconditioned Stimuli

In classical conditioning, stimuli that naturally and automatically trigger a response without prior learning.