(Appendix 13C) Stockinger Corporation Has Provided the Following Information Concerning

question 30

Multiple Choice

(Appendix 13C) Stockinger Corporation has provided the following information concerning a capital budgeting project:
$\begin{array}{lr}\text {Investment requiredin equipment. }&\$280,000\\\text {Expected life of the project. }&4\\\text { Salvage value of equipment. }&\$0\\\text { Annual sales.}&\$580,000\\\text {Annual cash operating expenses }&\$420,000\\\text {Working capital requirement. }&\$30,000\\\text {One-time renovation expense in year 3}&\$80,000\\\end{array}$
The company's income tax rate is 35% and its after-tax discount rate is 11%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
-The net present value of the entire project is closest to:

• A) $182,000
• B) $50,724
• C) $70,494
• D) $147,770

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Definitions:

Break-even Sales

The amount of revenue from sales needed to cover a company's fixed and variable costs, resulting in zero net income.

Unit Selling Price

The amount of money charged for each individual unit of a product or service sold.

Fixed Costs

Expenses that do not change with the level of production or sales over a short period, such as rent, salaries, and insurance.

Break-even Sales

The amount of revenue that must be generated to cover total fixed and variable costs, resulting in zero net income or loss.