Sader Corporation Is Considering a Capital Budgeting Project That Would

question 16

Multiple Choice

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:

Mass Markets

Very large markets comprising consumers who have similar needs for products or services.

Cost Leaders

Companies that manage to produce or offer services at the lowest cost in their industry or market segment, often leading to competitive pricing strategies.

Cost Leadership

A business strategy aiming to achieve the lowest production and distribution costs to offer lower prices than competitors.

Flexible Automation

Flexible automation refers to a manufacturing system that can quickly adapt to changes in the product being produced, allowing for customization and efficient production of various items.