Lanfranco Corporation Is Considering a Capital Budgeting Project That Would

question 52

Multiple Choice

Lanfranco Corporation is considering a capital budgeting project that would require investing $160,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $480,000 and annual incremental cash operating expenses would be $330,000. 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 $100,000 in year 3. The company's income tax rate is 35% and its after-tax discount rate is 6%. 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)$161,748
• B)$169,668
• C)$221,000
• D)$273,670

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