ELK,IncHas Compiled This Information for a Proposed Project: Sales Price

question 17

Multiple Choice

ELK,Inc.has compiled this information for a proposed project: Sales price = $89 ± 3 percent;Fixed costs = $21,800 ± 1 percent;Variable cost per unit = $42.90 ± 3 percent;Sales quantity = 1,500 units ± 5 percent;Tax rate = 34 percent;Initial investment in fixed assets = $36,500;Depreciation method = Straight-line to a zero book value over the project's life;Project life = 4 years;Salvage value of fixed assets = $0;Net working capital requirement = $4,800,which will be recouped at the end of the project;Discount rate = 12 percent.What is the project's net present value for the pessimistic scenario?

• A)$40,661.77
• B)$47,422.30
• C)$45,899.20
• D)$44,371.81
• E)$52,222.30

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Definitions:

Unused Capacity

The available but unutilized production capability or volume in a given period, indicating inefficiencies or room for output expansion.

Cost Object

Anything for which cost data are desired. Examples of cost objects are products, customers, geographic regions, and parts of the organization such as departments or divisions.

Indirect Cost

Costs that are not directly traceable to a specific product, project, or activity, such as utilities, rent, and administrative expenses.

Direct Cost

A cost that can be easily and conveniently traced to a specified cost object.