Use the Information for the Following Question(s)

question 38

Multiple Choice

Use the information for the following question(s) .
The Wheel Deal Inc., a company that produces 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 euro 1,200,000 and additional installation of euro 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 euro 600,000 per year over current levels for the next 5 years, however; expenses will also increase by euro 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 euro 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 euro 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 17.1. In euros, what is the NPV of the Wheel Deal expansion?

• A) euro 1,524,690
• B) $1,611,317
• C) -euro 75,310
• D) -euro 111,317

Distinguish between various types of accounts such as assets, liabilities, equity, revenue, and expense accounts.

Identify the principles of accrual accounting, including the recognition of revenues and expenses.

Recognize the definitions and treatment of prepaid expenses, accrued expenses, and deferred revenues.

Relate the effect of proper and improper adjustments on financial statements’ accuracy and completeness.

---

Definitions:

Buddhism

A spiritual tradition and religion founded on the teachings of Buddha, focusing on personal spiritual development and the attainment of a deep insight into the true nature of life.

Octavio Paz

A Mexican poet and diplomat, awarded the Nobel Prize in Literature in 1990, known for his works that explore the nature of individual experience and cultural identity.

Indigenous Philosophies

The set of varied philosophical perspectives, knowledge systems, and approaches to living and understanding the world that are rooted in the cultures and experiences of indigenous peoples.

Social Existence

The way individuals exist or live together in communities or societies, influencing and being influenced by each other.