Garden-Grow Products Is Considering a New Investment Whose Data Are

question 56

Multiple Choice

Garden-Grow Products is considering a new investment whose data are shown below.The equipment would be depreciated on a straight-line basis over the project's 3-year life,would have a zero salvage value,and would require some additional working capital that would be recovered at the end of the project's life.Revenues and other operating costs are expected to be constant over the project's life.What is the project's NPV? (Hint: Cash flows are constant in Years 1 to 3.) $\begin{array}{lr}\text { WACC } & 10.0 \% \\\text { Net investment in fixed assets (basis) } & \$ 75,000 \\\text { Required new working capital } & \$ 15,000 \\\text { Straight-line deprec. rate } & 33.333 \% \\\text { Sales revenues, each year } & \$ 75,000 \\\text { Operating costs (excl. deprec.) , each year } & \$ 25,000\\\text { Tax rate } & 35.0 \%\end{array}$

• A) $23,852
• B) $25,045
• C) $26,297
• D) $27,612
• E) $28,993

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Definitions:

Performance Goals

Specific targets or objectives set to measure and achieve desired outputs and outcomes from an individual's work.

Expectancy Theory

A theory of motivation that posits that individuals are motivated to act in a certain way based on their expectations that the act will be followed by a given outcome and the attractiveness of that outcome.

Goal-Setting Theory

A theory suggesting that setting specific, challenging goals, with appropriate feedback, leads to higher performance.

ERG Theory

A theory of human motivation that categorizes needs into three groups: Existence, Relatedness, and Growth.