Bugs Buster Is Considering Investing in a New Risky Project

question 25

Multiple Choice

Bugs Buster is considering investing in a new risky project that requires $100,000 for the purchase of new equipment and $20,000 for additional net working capital.The equipment has a five-year life and a CCA rate of 30 percent.The equipment is expected to sell for $8,500 at the end of the project.Assume the asset class remains open after the asset is sold.The firm's cost of capital is 12 percent and marginal tax rate is 35 percent.The risk premium for the project is 3 percent.What is the present value of the terminal after-tax cash flow?

• A) $14,169.54
• B) $16,171.67
• C) $16,241.76
• D) $18,536.69

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Definitions:

Cost of Selling Goods

The total expense directly incurred from the production or purchase of items sold by a business.

Cost of Goods Sold

An expense recorded on the income statement that reflects the total cost of producing or purchasing the goods that a company has sold during a specific period.

Cost of Goods Sold

Represents the total cost of all goods that were sold over a specific period, including the costs associated with production or purchase.

Gross Profit

The difference between revenue and the cost of goods sold (COGS), indicating the efficiency of a company in using its labor and supplies.