(Appendix 13C) Hinger Corporation Is Considering a Capital Budgeting Project

question 28

Multiple Choice

(Appendix 13C) Hinger Corporation is considering a capital budgeting project that would require investing $120,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $350,000 and annual incremental cash operating expenses would be $250,000. The project would also require an immediate investment in working capital of $10,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 35% and its after-tax discount rate is 11%. The company uses straight-line depreciation. 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) $91,861
• B) $157,650
• C) $85,271
• D) $156,000

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Definitions:

Chi-square

A statistical test used to determine if there is a significant association between two categorical variables.

Independent Samples

Two or more groups of data that are collected from separate populations, where the participants in one group do not affect the members of another group.

ANOVA

Analysis of Variance (ANOVA) is a statistical method used to test differences between two or more means by analyzing variances.