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

---

Definitions:

Selling Expenses

Costs incurred by a company or individual directly related to the selling of goods or services, such as advertising, sales commissions, and retail space rental.

Junior Interests

Financial stakes in a company or property that rank below other debts and investments in terms of claims on assets or earnings.

Creditor's Debt

An obligation owed by a debtor to a creditor, typically involving the repayment of borrowed money with interest.

Automatically Perfected

A status achieved by security interests in certain types of property upon attachment, without further legal action or filing required.