Keyser Mining Is Considering a Project That Will Require the Purchase

question 102

Multiple Choice

Keyser Mining is considering a project that will require the purchase of $980,000 in new equipment.The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project.The equipment can be scraped at the end of the project for 5 percent of its original cost.Annual sales from this project are estimated at $420,000.Net working capital equal to 20 percent of sales will be required to support the project.All of the net working capital will be recouped.The required return is 16 percent and the tax rate is 35 percent.What is the amount of the aftertax salvage value of the equipment?

• A)$17,150
• B)$31,850
• C)$118,800
• D)$237,600
• E)$343,000

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Definitions:

Wholesale Meat

The bulk selling and distribution of meat products to retailers, food service establishments, or other businesses, rather than direct to consumers.

Final Consumer

The end user who purchases a product or service for personal use, not for manufacturing or resale.

Government

An organization that provides goods and services to households and firms, and that redistributes income and wealth.

Assisted-Living

A residential option for seniors who need help with daily activities but do not require the full-time healthcare services provided in a nursing home.