Use the Information to Answer the Following Question(s)

question 38

Multiple Choice

Use the information to answer the following question(s) .
The Velo Rapid Revolutions Inc., a company that produces bicycles, elliptical trainers, scooters and other wheeled non-motorized recreational equipment, is considering an expansion of their product line to Europe. The expansion would require a purchase of equipment with a price of €1,200,000 and additional installation of €300,000 (assume that the installation costs cannot be expensed, but rather, must be depreciated over the life of the asset) . Because this would be a new product, they will not be replacing existing equipment. The new product line is expected to increase revenues by €600,000 per year over current levels for the next 5 years, however; expenses will also increase by €200,000 per year. (Note: Assume the after-tax operating cash flows in years 1-5 are equal, and that the terminal value of the project in year 5 may change total after-tax cash flows for that year.) The equipment is multipurpose and the firm anticipates that they will sell it at the end of the five years for €500,000. The firm's required rate of return is 12% and they are in the 40% tax bracket. Depreciation is straight-line to a value of euro 0 over the 5-year life of the equipment, and the initial investment (at year 0) also requires an increase in NWC of €100,000 (to be recovered at the sale of the equipment at the end of five years) . The current spot rate is $0.95/euro, and the expected inflation rate in the U.S. is 4% per year and 3% per year in Europe.
-Refer to Instruction 18.1. What are the annual after-tax cash flows for the Velo Rapid Revolutions project?

• A) €400,000
• B) €240,000
• C) €120,000
• D) €360,000

Recognize the influence of societal values on individual choices and consumer behavior.

Analyze the concept of social mobility and factors that influence an individual's upward or downward movement within the social structure.

Examine the role of occupation and education in determining social status and prestige.

Understand the impact of immigration policies on social class and mobility.

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Definitions:

CAPM

The Capital Asset Pricing Model, a theory used to determine the expected return on an investment, factoring in risk and the time value of money.

Risk-free Rate

The return on an investment with zero risk, typically represented by the yield on government securities.

Capital Asset Pricing Model

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks, used in finance to price risky securities.

William Sharpe

An economist who created the Sharpe Ratio, a measure to calculate risk-adjusted return.