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:

Standard Cost

A detailed estimate of what a product should cost.

Past Cost Data

Historical financial information regarding the costs incurred by a business.

Ideal Standards

Standards that can be achieved only under perfect operating conditions, such as no idle time, no machine breakdowns, and no materials spoilage; also called theoretical standards.

Machine Breakdowns

Refers to the unexpected failures or malfunctions of machinery that disrupt the production process or operations.