Your Company Is Considering a Machine That Will Cost $1,000

question 20

Multiple Choice

Your company is considering a machine that will cost $1,000 at Time 0 and which can be sold after 3 years for $100.To operate the machine,$200 must be invested at Time 0 in inventories;these funds will be recovered when the machine is retired at the end of Year 3.The machine will produce sales revenues of $900/year for 3 years;variable operating costs (excluding depreciation) will be 50 percent of sales.Operating cash inflows will begin 1 year from today (at Time 1) .The machine will have depreciation expenses of $500,$300,and $200 in Years 1,2,and 3,respectively.The company has a 40 percent tax rate,enough taxable income from other assets to enable it to get a tax refund from this project if the project's income is negative,and a 10 percent required rate of return.Inflation is zero.What is the project's NPV?

• A) $6.24
• B) $7.89
• C) $8.87
• D) $9.15
• E) $10.41

---

Definitions:

Free Recall

A memory task where participants are asked to remember information in any order without cues.

Cued Recall

A memory retrieval process where an individual is given significant prompts or clues to aid in the recollection of previously learned information.

Recognition

The identification of something as already known or previously encountered, often used in the context of cognitive processes and memory.

Savings

Money that has been set aside for future use rather than being spent immediately, often put in a bank or invested for growth.