California Hideaways Is Considering a New Project Whose Data Are

question 8

Multiple Choice

California Hideaways is considering a new project whose data are shown below. The equipment has a 4-year project life. This equipment falls into class 43 with a CCA rate of 30% and would have zero salvage value. No new working capital would be required. Revenues and cash operating costs are expected to be constant over the project's 4-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1 to 4.) WACC10.0%
Net investment cost$65,000
Sales revenues, each year$60,000
Cash operating costs$25,000
Tax rate35.0%

• A) $28,499
• B) $23,402
• C) $19,417
• D) $16,284

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Definitions:

Contributory Negligence

A legal doctrine that reduces the amount of damages a plaintiff can receive based on their own negligence contributing to the harm.

402A

A section of the Restatement (Second) of Torts, which sets out the principle of strict liability for harm caused by defective products.

Misuse Or Abuse

Wrong or excessive use of something that can lead to harm or damage.

Implied Warranties

Guarantees legally assumed in a transaction, suggesting that the product sold will meet certain standards of quality and reliability.