A Project Requires an Initial Investment in Equipment of $90,000

question 6

Multiple Choice

A project requires an initial investment in equipment of $90,000 and then requires an initial investment in working capital of $10,000 (at t = 0) .You expect the project to produce sales revenue of $120,000 per year for three years.You estimate manufacturing costs at 60% of revenues.(Assume all revenues and costs occur at year-end,i.e.,t = 1,t = 2,and t = 3.) The equipment depreciates using straight-line depreciation over three years.At the end of the project,the firm can sell the equipment for $10,000 and also recover the investment in net working capital.The corporate tax rate is 30% and the cost of capital is 15%.What is the NPV of the project if the revenues were higher by 10% and the costs were 65% of the revenues?

• A)$8,443
• B)$964
• C)$5,566
• D)$4,840

---

Definitions:

Miliaria

A skin condition often called "heat rash," characterized by small, itchy rashes due to blocked sweat ducts.

Respiratory Breathing

The process of inhaling oxygen and exhaling carbon dioxide through the respiratory system, essential for life and cellular function.

Abdominal

Pertaining to the abdomen, the body region that contains the majority of the organs of the digestive system, as well as the liver, pancreas, and kidneys.

Apical Heart Rate

The number of heartbeats per minute as measured at the apex of the heart, typically done using a stethoscope placed on the chest.