Goldsmith Labs Recovers Gold from Printed Circuit Boards

question 24

Multiple Choice

Goldsmith Labs recovers gold from printed circuit boards.It has developed new equipment for this purpose.You have the following data.
1) The equipment costs $250,000.
2) It costs $200,000 per year to operate.
3) It has an economic life of five years and is depreciated using the straight-line method.
4) It will recover 300 ounces of gold per year.
5) The current price of gold is $900 per ounce and is expected to increase at a rate of 4% per year for the foreseeable future.
6) The tax rate is 30%.
7) The cost of capital is 8%.
What is the NPV of installing this equipment?

• A)$430,400
• B)$520,510
• C)$470,400
• D)$195,911

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Definitions:

Support Price

A price level set by the government or a regulatory body to stabilize or support the market price of a commodity.

Demand Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, with all else being equal.

Producer Surplus

The difference between what producers are willing to sell a good for and the higher price they actually receive.

Government Policy

Actions, regulations, or laws enacted by a government to influence economic, social, or environmental outcomes within its jurisdiction.