NARRBEGIN: Exhibit 9-1 Exhibit 9-1

question 44

Multiple Choice

NARRBEGIN: Exhibit 9-1
Exhibit 9-1
A project requires an initial investment in equipment and machinery of $10 million.The equipment is expected to have a 5-year lifetime with no salvage value and will be depreciated on a straight-line basis.The project is expected to generate revenues of $5.1 million each year for the 5 years and have operating expenses (not including depreciation) amounting to 1/3 of revenues.
-Refer to Exhibit 9-1.Assume the tax rate is 40%,and the cost of capital is 10%.What is the net present value of the project?

• A) $2.89m
• B) $0.77m
• C) -$6.82m
• D) -$2.27m

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Definitions:

Accounts Payable

Liabilities of a company or organization for goods or services that have been received but not yet paid for.

Net Income

The final earnings of a company once expenses and taxes are subtracted from the total revenue.

Operating Activities

Transactions and events that relate to the primary operations of the company, including revenue and expense activities.