Schroeder Electronics Is Considering a Project Which Will Require the Purchase

question 85

Multiple Choice

Schroeder Electronics is considering a project which will require the purchase of $5 million in new equipment. The equipment will be depreciated straight-line to a zero book value over the 5-year life of the project. Schroeder's expects to sell the equipment at the end of the project for 10% of its original cost. Annual sales from this project are estimated at $2.3 million. Net working capital equal to 10% of sales will be required to support the project. All of the net working capital will be recouped at the end of the project. Schroeder desires a 12% rate of return on this project. The tax rate is 40%. What is the amount of the after-tax salvage value of the equipment?

• A) $134,000
• B) $150,000
• C) $195,400
• D) $250,000
• E) $300,000

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Definitions:

Social Purpose

The objective or intention of an organization to contribute positively to society or specific causes beyond financial gains.

Commoditization

The process by which goods or services become undifferentiated in the eyes of the consumer, leading to competition based primarily on price rather than features or quality.

Leadership

The act of guiding, directing, or influencing a group towards achieving a common goal, often involving qualities such as vision, communication, and decision-making.