Exhibit 9-1 A Project Requires an Initial Investment in Equipment and Machinery

question 47

Multiple Choice

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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