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

question 102

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 35% 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.

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Definitions:

Marginal Revenue

The supplementary earnings obtained through the sale of one more unit of any good or service.

Total Revenue

The total amount of money generated from the sale of goods or services before any costs or expenses are deducted.

Profit Maximized

A state or point at which a business achieves its highest possible profit with its current resources and market conditions.

Coffee Farm

A farm where coffee plants are cultivated for their beans.