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

question 107

Multiple Choice

What happens to the NPV of a one-year project if fixed costs are increased from $400 to $600,the firm is profitable,has a 35% tax rate,and employs a 12% cost of capital?

• A) NPV decreases by $200.00.
• B) NPV decreases by $173.91.
• C) NPV decreases by $130.00.
• D) NPV decreases by $113.04.

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Definitions:

Net Cash

The difference between a company's total cash inflows and outflows within a period.

Cash Dividends

Payments made by a corporation to its shareholders from its profits.

Free Cash Flow

The amount of cash a company generates after accounting for cash outflows to support operations and maintain capital assets.

Net Income

The profit of a company after all expenses and taxes have been subtracted from revenue.