(Appendix 8C)Sader Corporation Is Considering a Capital Budgeting Project That

question 17

Multiple Choice

(Appendix 8C) Sader Corporation is considering a capital budgeting project that would require an investment of $160, 000 in equipment with a 4 year expected life and zero salvage value.Annual incremental sales will be $420, 000 and annual incremental cash operating expenses will be $320, 000.The company's income tax rate is 30% and the after-tax discount rate is 8%.The company uses straight-line depreciation on all equipment;the annual depreciation expense will be $40, 000.Assume cash flows occur at the end of the year except for the initial investments.The company takes income taxes into account in its capital budgeting. The net present value of the project is closest to:

• A)$271, 584
• B)$111, 584
• C)$171, 200
• D)$168, 000

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Definitions:

Price-Weighted

A stock market index calculation method where stocks are weighted according to their price per share, rather than their total market capitalization.

Divisor

A numeric factor used in calculations to adjust stock indexes, reflecting changes in the composition of the index without affecting its overall value.

Money Market Instrument

Financial securities that provide liquidity and are considered low risk, such as treasury bills, certificates of deposit, and commercial paper, with maturities typically less than one year.

Treasury Bond

Long-term, low-risk government debt securities issued by the U.S. Department of the Treasury, with maturities extending beyond ten years.