What Is the Change in the NPV of a One-Year

question 24

Multiple Choice

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

• A) −$200.00
• B) −$178.57
• C) −$130.00
• D) −$116.07

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Definitions:

Fixed Manufacturing Overhead

Expenses related to production that remain constant, regardless of the production volume, such as maintenance of machinery and property taxes.

Deferred

A term referring to items or expenses that are not recognized immediately but postponed to a future date.

Absorption Costing

This approach to accounting incorporates all costs associated with manufacturing such as direct materials, direct labor, and variable as well as fixed overhead expenses into the price of a product.

Operations

Refers to the day-to-day activities involved in running a business that lead to the production of goods and provision of services.