Lastufka Corporation Is Considering a Capital Budgeting Project

question 98

Multiple Choice

Lastufka Corporation is considering a capital budgeting project. The project would require an investment of $240,000 in equipment with a 4 year expected life and zero salvage value. The company uses straight-line depreciation and the annual depreciation expense will be $60,000. Annual incremental sales would be $500,000 and annual incremental cash operating expenses would be $390,000. The company's income tax rate is 35% and the after-tax discount rate is 8%. The company takes income taxes into account in its capital budgeting. Assume cash flows occur at the end of the year except for the initial investments. The net present value of the project is closest to:

• A)$66,360
• B)$306,360
• C)$130,000
• D)$124,320

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Definitions:

Sequential Games

are strategic interactions where the players make decisions one after another, with later players having knowledge of the earlier actions.

Nash Equilibrium

A concept in game theory where each player's strategy is optimal, given the strategies of other players, resulting in a situation where no player has an incentive to deviate from their chosen strategy.

Sequential Game

A type of game theory model where players make decisions or moves in a specific order, allowing for the reaction to previous moves by other players.

Payoff Matrix

A table that shows the potential outcomes of different strategies in a decision-making situation, often used in game theory.