A Firm Is Considering a Project That Requires an Initial

question 81

Multiple Choice

A firm is considering a project that requires an initial cash outflow of $1,000,000 for the purchase of a capital asset,which has an eight-year life and a CCA rate of 20 percent,with the asset class remaining open.The expected salvage value of the asset is $75,000 at the end of eight years.The project will generate sales revenue of $450,000 in the first year,which will grow at 5 percent per year in the subsequent years.Variable costs will be $200,000 for the first year,which will also grow at 5 percent per year.The firm's marginal tax rate is 40 percent and required return is 12 percent.What is the project's NPV?

• A) $123,498
• B) $166,707
• C) $1,402,183
• D) $1,509,326

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Definitions:

Affirming

is the process of confirming, validating, or stating positively.

Avoid a Contract

The act of nullifying or declaring a contract invalid, thereby releasing the parties from their obligations under that contract.

Intervening Rights

Legal rights that may emerge for a third party in the period between the initial filing of a patent and its reissuance or modification, affecting enforcement.

Specific Performance

A legal remedy requiring a party to perform their contractual obligations when monetary damages are inadequate.