Shultz Business Systems Is Analyzing an Average-Risk Project,and the Following

question 77

Multiple Choice

Shultz Business Systems is analyzing an average-risk project,and the following data have been developed.Unit sales will be constant,but the sales price should increase with inflation.Fixed costs will also be constant,but variable costs should rise with inflation.The project should last for 3 years,it will be depreciated on a straight-line basis,and there will be no salvage value.This is just one of many projects for the firm,so any losses can be used to offset gains on other firm projects.What is the project's expected NPV? $\begin{array}{lr}\text { WACC } & 10.0 \% \\\text { Net investment cost (depreciable basis) } & \$ 200,000 \\\text { Units sold } & 50,000 \\\text { Average price per unit, Year 1 } & \$ 25.00 \\\text { Fixed op. cost excl. deprec. (constant) } & \$ 150,000 \\\text { Variable op. cost/unit, Year 1 } & \$ 20.20 \\\text { Annual depreciation rate } & 33.333 \% \\\text { Expected inflation rate per year } & 5.00 \% \\\text { Tax rate } & 40.0 \%\end{array}$

• A) $15,925
• B) $16,764
• C) $17,646
• D) $18,528
• E) $19,455

---

Definitions:

Chocolate Chip Cookies

Chocolate chip cookies are a popular dessert made from dough that includes chocolate chips as a primary ingredient, typically baked until golden brown.

Nearly Normal Condition

A requirement that a distribution be approximately normal in shape for certain statistical methods to be validly applied.

Cholesterol Level

The measure of cholesterol concentration in the blood, an essential factor in assessing heart health and risk of cardiovascular disease.

Inference Conditions

Set of prerequisites that need to be met before statistical methods can be applied to make inferences about a population from a sample.