A Project Requires an Initial Investment of $200,000 and Expects

question 10

Multiple Choice

A project requires an initial investment of $200,000 and expects to produce a cash flow before taxes of 120,000 per year for two years .The corporate tax rate is 30%.The assets will depreciate using the MACRS - 3-year schedule: (t = 1,33%) ; (t = 2: 45%) ; (t = 3: 15%) ; (t = 4: 7%) .The company's tax situation is such that it can use all applicable tax shields.The opportunity cost of capital is 12%.Assume that the asset can sell for book value at the end of the project.Calculate the NPV of the project (approximately) :

• A)$22,463.
• B)$19,315.
• C)$16,244.
• D)$5,721

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Definitions:

Liability

A financial obligation or debt owed by a company to another entity, which must be settled in the future through the transfer of assets or services.

Petty Cash

Petty cash is a small amount of cash on hand used for paying expenses too small to merit writing a check or using a credit card.

Cash Payments

Transactions where money is paid out by a business or individual in exchange for goods or services.

Writing Checks

The process of completing a check to make a payment from a bank account.