Suppose a Six-Year Project Requires an Initial Capital Investment of $425,000

question 27

Multiple Choice

Suppose a six-year project requires an initial capital investment of $425,000 and an initial net working capital investment of $50,000.The project is expected to provide operating revenue of $270,000 per year.The associated operating costs are expected to be $130,000 per year.The capital asset belongs to Class 9 and has a CCA rate of 30 percent.The asset is expected to sell for $40,000 when the project terminates.Assume the asset class remains open when the asset is sold.The firm's marginal tax rate is 40 percent and cost of capital is 8 percent.What impact would it have on the project's NPV if the cost of capital were 10 percent?

• A) NPV decreases by 23.14%
• B) NPV decreases by 38.04%
• C) NPV decreases by 48.20%
• D) NPV decreases by 61.41%