Niwot IncIs Considering an Investment That Will Generate $600,000 in Cash

question 52

Multiple Choice

Niwot Inc.is considering an investment that will generate $600,000 in cash inflows per year for 7 years and has $360,000 of cash outflows for the same period (before income taxes) .The cost of the asset is $420,000 and it will be depreciated using straight-line depreciation over the 7 year life.The asset has no salvage value.Niwot's tax rate is 30%.The cost of capital is 9%.
Factors: Present Value af an Annuity $( r = 9 \% )$
$\begin{array} { l l } \text { Year 1 } & 0.9174 \\ \text { Year 2 } & 1.7591 \\ \text { Year 3 } & 2.5313 \\ \text { Year 4 } & 3.2397 \\ \text { Year 5 } & 3.8897 \\ \text { Year 6 } & 4.4859 \\ \text { Year 7 } & 50330 \end{array}$
What is the net present value of this investment (rounded to the nearest dollar) ?

• A)$516,138
• B)$953,400
• C)$999,180
• D)$485,940
• E)None of the answer choices is correct.

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Definitions:

Equilibrium Quantity

The quantity of goods or services supplied equals the quantity demanded at the market equilibrium price.

Domestic Demand Curve

A graphical representation showing the quantity of a product that consumers in a domestic market are willing to purchase at various prices.

World Price

The international market price of a good, influenced by global supply and demand factors.

Importing Steel

The act of bringing in steel from other countries to meet domestic demand or for manufacturing purposes, often due to a lack of local supply or cost effectiveness.