Your Company Is Considering a Machine That Will Cost $1,000

question 20

Multiple Choice

Your company is considering a machine that will cost $1,000 at Time 0 and which can be sold after 3 years for $100.To operate the machine,$200 must be invested at Time 0 in inventories;these funds will be recovered when the machine is retired at the end of Year 3.The machine will produce sales revenues of $900/year for 3 years;variable operating costs (excluding depreciation) will be 50 percent of sales.Operating cash inflows will begin 1 year from today (at Time 1) .The machine will have depreciation expenses of $500,$300,and $200 in Years 1,2,and 3,respectively.The company has a 40 percent tax rate,enough taxable income from other assets to enable it to get a tax refund from this project if the project's income is negative,and a 10 percent required rate of return.Inflation is zero.What is the project's NPV?

• A) $6.24
• B) $7.89
• C) $8.87
• D) $9.15
• E) $10.41

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