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

question 27

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.The corporate tax rate is 30 percent and the cost of capital is 16.5 percent.Calculate the NPV of the project.

• A)$5,648
• B)$3,840
• C)-$2,735
• D)$4,848

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Definitions:

Board of Directors

A group of individuals elected by shareholders to oversee the activities and direction of a corporation.

Financial Performance

A measure of how well a company is using its assets to generate profits, often analyzed through financial statements like the income statement and balance sheet.

Disaggregate

To break down into smaller components or elements for analysis or examination.

Financial Statement

A written report that quantitatively describes the financial health of a company, including balance sheets, income statements, and cash flow statements.