Determine If This Project Is Profitable Under the Following Circumstances

question 10

Multiple Choice

Determine if this project is profitable under the following circumstances: A company is undertaking a new project. The specialized equipment that needs to be bought has an expense of $28,000. In addition, permits and licenses are required which will cost $1500. Employee training will be an additional $46,000 expenditure. To produce the merchandise, raw materials are required that will cost $48,000 and this project will generate cash flows of $25,000 per year for 10 years. The cost of capital for this project is 12%.

• A) Yes, the project is acceptable with a net present value equaling about $17,756.
• B) Yes, the project is acceptable with a net presernt value equaling about $48,257.
• C) No, the project is not acceptable with a net present value equaling about -$15,275.
• D) No, the project is not acceptable with a net present value equaling about -$18,000.

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Definitions:

Operations

Operations refer to the day-to-day activities involved in the running of a business for the purpose of producing value for the stakeholders; it encompasses everything from manufacturing goods to providing services.

Division of Income

The allocation of profit among different heads or sections for financial analysis or taxation purposes.

Capital Contributions

The funds or assets contributed to a company by its owners or shareholders to increase equity.

Beginning Capital Balance

The total funds noted in a corporation's books at the beginning of a fiscal period.