Schroeder Electronics Is Considering a Project Which Will Require the Purchase

question 9

Multiple Choice

Schroeder Electronics is considering a project which will require the purchase of $5 million in new equipment. The equipment will be depreciated straight-line to a zero book value over the 5-year life of the project. Schroeder's expects to sell the equipment at the end of the project for 10% of its original cost. Annual sales from this project are estimated at $2.3 million. Net working capital equal to 10% of sales will be required to support the project. All of the net working capital will be recouped at the end of the project. Schroeder desires a 12% rate of return on this project. The tax rate is 40%.
-What is the amount of the after-tax salvage value of the equipment?

• A)$134,000
• B)$150,000
• C)$195,400
• D)$250,000
• E)$300,000

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Definitions:

Assumed

Something that is taken for granted or accepted as true without proof or demonstration.

Diffusion Of Responsibility

The feeling among bystanders at an emergency that the responsibility for helping is shared by the group, making each person feel less compelled to act than if he or she alone bore the total responsibility.

Darley And Latané

Psychologists known for their research on the bystander effect, illustrating how individual responsibility is diluted in the presence of others.

Bystander Effect

A behavioral pattern observed in social psychology where people are less inclined to assist someone in need when there are others around.