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

question 142

Multiple Choice

(Appendix 8C) Folino Corporation is considering a capital budgeting project that would require investing $120, 000 in equipment with an expected life of 4 years and zero salvage value.Annual incremental sales would be $380, 000 and annual incremental cash operating expenses would be $300, 000.The project would also require an immediate investment in working capital of $10, 000 which would be released for use elsewhere at the end of the project.The project would also require a one-time renovation cost of $30, 000 in year 3.The company's income tax rate is 35% and its after-tax discount rate is 15%.The company uses straight-line depreciation.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 entire project is closest to:

• A)$110, 500
• B)$35, 669
• C)$84, 460
• D)$41, 389

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Definitions:

Planning Process

A series of steps followed to create strategies, allocate resources, and implement actions to achieve goals.

Participatory Planning

An approach to planning which involves stakeholders or community members in the decision-making process to better meet their needs and ensure more effective outcomes.

Conflict Over Scarce Resources

Disputes that arise due to limited availability of resources required by multiple parties.

Creativity

The ability to generate innovative ideas and solutions.