What Happens to the NPV of a One-Year Project If

question 122

Multiple Choice

What happens to the NPV of a one-year project if fixed costs are increased from $400 to $600, the firm is not profitable, has a 15% tax rate and employs a 12% cost of capital?

• A)NPV decreases by $200.00
• B)NPV decreases by $178.57
• C)NPV decreases by $130.00
• D)NPV decreases by $113.04 Increase fixed costs by $200
• Present value of $200 at 12% for 1 year = $178.57.

---

Definitions:

Accrued Liabilities

Expenses that have been incurred but not yet paid, recognized on the balance sheet for accounting purposes.

Operating Activities

Activities directly related to the primary operations of a business, including production, sales, and delivery of services.

Net Cash Provided

The amount of cash generated by a company's operations after accounting for outflows and inflows.

Cash Account

An account that shows the amount of cash a company has on hand or in the bank.