Gamma Company Is Considering an Investment Proposal That Would Require

question 63

Multiple Choice

Gamma Company is considering an investment proposal that would require an initial outlay of $816,000,and would yield yearly cash flows of $220,000 for 9 years.The company uses a discount rate of 10%.What is the NPV of the investment?
Present value of annuity of $1:
$$\begin{array} { | l | r | r | r | } \hline & { 8 \% } & { 9 \% } & { 10 \% } \\\hline 1 & 0.926 & 0.917 & 0.909 \\\hline 2 & 1.783 & 1.759 & 1.736 \\\hline 3 & 2.577 & 2.531 & 2.487 \\\hline 4 & 3.312 & 3.24 & 3.17 \\\hline 5 & 3.993 & 3.89 & 3.791 \\\hline 6 & 4.623 & 4.486 & 4.355 \\\hline 7 & 5.206 & 5.033 & 4.868 \\\hline 8 & 5.747 & 5.535 & 5.335 \\\hline 9 & 6.247 & 5.995 & 5.759 \\\hline\end{array}$$

• A) $385,000
• B) $248,333
• C) $450,980
• D) $408,000

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Definitions:

Raw Materials Inventory

The total cost of all raw materials that are yet to be used in production.

Gallons

A unit of volume measurement used primarily in the United States to quantify liquids.

Standard Costs

Predetermined costs for manufacturing a product, used for budgeting and assessing performance.

Cost of Goods Sold

The total direct costs attributable to the production of goods sold by a company, including materials and labor.