Consider a Capital Expenditure Project That Has Forecasted Revenues Equal

question 60

Multiple Choice

Consider a capital expenditure project that has forecasted revenues equal to $32,000 per year; cash expenses are estimated to be $29,000 per year. The cost of the project equipment is $23,000, and the equipment's estimated salvage value at the end of the project is $9,000. The equipment's $23,000 cost will be depreciated on a straight-line basis to $0 over a 10-year estimated economic life. Assume that the project requires an initial $7,000 working capital investment. The company's marginal tax rate is 30%. Calculate the project's net present value using a 12% discount rate.

• A) about -$10,610
• B) about -$12,530
• C) about -$9,954
• D) about +$9,462

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Definitions:

Molecular Formula

A notation that uses chemical symbols and numbers to represent the types and quantities of atoms in a molecule.

Cyclooctane

Cyclooctane is a cyclic hydrocarbon with the molecular formula C8H16, featuring eight carbon atoms connected in a ring.

Organic Solvent

A solvent containing carbon that is used to dissolve other substances; it is an essential part of many chemical processes because it can dissolve many organic compounds.

Molecular Formula

A representation of the numbers and types of atoms present in a molecule, but not its structure.