Suppose a Five-Year Project Requires an Initial Capital Investment of $600,000

question 83

Multiple Choice

Suppose a five-year project requires an initial capital investment of $600,000 and an initial net working capital investment of $30,000.The project is expected to provide operating revenue of $400,000 per year.The associated operating costs are expected to be $175,000 per year.The capital asset belongs to Class 7 and has a CCA rate of 15 percent.The asset is expected to sell for $168,000 when the project terminates.Assume the asset class remains open after the project ends.The firm's marginal tax rate is 40 percent and cost of capital is 10 percent.What impact would it have on the project's NPV if the operating revenue falls by 5 percent?

• A) NPV decreases by 21.85%
• B) NPV decreases by 38.84%
• C) NPV decreases by 46.19%
• D) NPV decreases by 63.51%

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Definitions:

Superego

The superego is a component of Sigmund Freud's psychoanalytic theory, acting as the ethical component of the personality by providing moral standards by which the ego operates.

Oedipus Complex

A psychoanalytic theory introduced by Freud suggesting a child's unconscious sexual desire for the opposite-sex parent and jealousy towards the same-sex parent.

Free Association

A psychoanalytic technique in which the patient verbalizes thoughts as they come to mind without censorship or selection, intended to uncover unconscious desires and conflicts.

Erogenous Zones

Areas of the body that, when stimulated, give rise to sexual arousal and pleasure.