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

question 48

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 percent 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 percent and the cost of capital is 15 percent.Calculate the NPV of the project.

• A)$3,840
• B)$8,443
• C)$-2,735
• D)$7,342

---

Definitions:

Situational Context

The specific environmental, social, and cultural conditions or circumstances in which an event or action occurs.

Maladaptive

Behaviors or thought patterns that inhibit an individual's ability to adjust healthily to specific situations.

Bipolar Disorder

A psychological disorder identified by significant fluctuations in mood, ranging from manic or hypomanic episodes of extreme happiness to depressive episodes of profound sadness.

Depression

An affective disorder characterized by a sustained sorrowful mood or a lack of excitement in life's activities, severely compromising daily existence.