Use the Information for the Question(s)below

question 28

Multiple Choice

Use the information for the question(s) below.
Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane.THSI will lease space in this facility to various agencies and groups providing relief services to the area.THSI estimates that this project will initially cost $5 million to set up and will generate $20 million in revenues during its first and only year in operation (paid in one year) .Operating expenses are expected to total $12 million during this year and depreciation expense will be another $3 million.THSI will require no working capital for this investment.THSI's marginal tax rate is 35%.
-Assume that THSI's cost of capital for this project is 15%.The net present value (NPV) of this temporary housing project is closest to:

• A)$435,000
• B)-$650,000
• C)$1,960,000
• D)-$435,000

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