A Suggested Project Requires Initial Fixed Assets of $227,000, Has

question 31

Multiple Choice

A suggested project requires initial fixed assets of $227,000, has a life of 4 years, and has no salvage value. Assume depreciation is straight-line to zero over the life of the project. Sales are projected at 31,000 units per year, the price per unit is $47, variable cost per unit is $23, and fixed costs are $842,900 per year. The tax rate is 23 percent and the required return is 11.5 percent. Suppose the projections given for price and quantity can vary by ±4 percent while variable and fixed cost estimates are accurate to within ±2 percent. What is the best-case NPV?

• A) $4,613
• B) −$67,008
• C) $127,511
• D) $82,409
• E) −$132,194

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Definitions:

Creative Thinking

The ability to think in new and original ways, coming up with innovative solutions to problems.

Heuristics

A problem-solving approach using practical methods and shortcuts to produce solutions within a reasonable time frame.

Algorithms

Very specific, step-by-step procedures for solving certain types of problems.

Mnemonic Devices

Techniques a person can use to help them improve their ability to remember something.