Assume Your Firm Will Consist of Just One Machine

question 53

Multiple Choice

Assume your firm will consist of just one machine. The machine costs $126,000 and has a physical life of 10 years. Tax laws require that it be depreciated over 7 years, using straight-line depreciation. The machine produces $50,000 a year in sales and requires cash expenses of $15,000 a year. All sales are cash sales, and your firm's marginal tax rate is 40%. Your overall cost of capital is 14% a year, and this is the appropriate rate at which to discount both the before-tax project cash flows and the cash flows to Uncle Sam. Your firm has $80,000 of debt at an interest rate of 10% a year. Your first interest payment is due in year 1. Your last interest payment and the principal on the debt are due in year 10.
-Refer to the information above. Calculate the NPV of the project.

• A)-$72,796
• B)+$21,094
• C)+$ 5,151
• D)+$14,414

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Definitions:

Crisis Counseling

Immediate and short-term psychological support provided during a crisis to help reduce stress and trauma.

Physical Injury

Harm or damage to a person's body resulting from accidents, violence, or other external forces.

Immediate Safety

The urgent protection of individuals from imminent danger or harm, often prioritized in crisis interventions and emergency response strategies.

Collaborative Decision Making

A process where two or more individuals work together to make a decision, incorporating diverse perspectives for more balanced and inclusive outcomes.