You Are Evaluating a Project for Your Company

question 46

Multiple Choice

You are evaluating a project for your company. You estimate the sales price to be $50 per unit and sales volume to be 5,000 units in year 1; 10,000 units in year 2; and 2,500 units in year 3. The project has a three-year life. Variable costs amount to $10 per unit and fixed costs are $75,000 per year. The project requires an initial investment of $25,000 in assets that will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $5,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 34 percent and the required return on the project is 13 percent. What change in NWC occurs at the end of year 1?

• A)$13,000
• B)$34,000
• C)$50,000
• D)$75,000

---

Definitions:

Rights

Fundamental privileges or claims individuals are entitled to under law, including rights to freedom, expression, privacy, and equality.

Duties

Obligations that an individual or entity is bound to perform, often by legal, ethical, or moral considerations.

Statutory Authority

Legal powers granted to an entity or individual by a statute, enabling them to enact or enforce laws.

Revocation

The action of withdrawing, cancelling, or annulling something previously granted, such as a right, license, or contract.