TexMex Products Is Considering a New Salsa Whose Data Are

question 28

Multiple Choice

TexMex Products is considering a new salsa whose data are shown below. The equipment has a constant capital cost allowance over its 3-year life with a zero salvage value. No new working capital would be required. Revenues and cash operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other TexMex products and would reduce the company's pre-tax annual cash flows. What is the project's NPV? (Hint: Cash flows are constant in Years 1 to 3. Actual CCA varies. The proposed CCA is for computational convenience.) WACC10.0%
Pre-tax cash flow reduction in other products (cannibalization) $5,000
Investment cost$65,000
Annual capital cost of allowance$21,665
Annual sales revenues$75,000
Annual cash operating costs$25,000
Tax rate35.0%

• A) $25,269
• B) $26,599
• C) $27,929
• D) $29,325

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Definitions:

Control Group

In experimental research, the group of participants that does not receive the experimental treatment, serving as a comparison for evaluating the effect of the treatment.

Aggressive Students

Refers to students who exhibit behaviors characterized by physical or verbal actions intended to hurt, intimidate, or dominate others.

Academic Performance

The extent to which a student, teacher, or institution has achieved their short or long-term educational goals.

Dependent Variable

In scientific research, this is the variable that is tested and measured; it is 'dependent' on the independent variable.