Majestic Theaters Is Considering Investing in Some New Projection Equipment

question 23

Multiple Choice

Majestic Theaters is considering investing in some new projection equipment whose data are shown below. The required equipment has a 7-year project life falling into a CCA class of 30%, but it would have a positive pre-tax salvage value at the end of Year 7. Also, some new working capital would be required, but it would be recovered at the end of the project's life. Revenues and cash operating costs are expected to be constant over the project's 7-year life. What is the project's NPV? WACC12.0%
Net capital investment in fixed assets$950,000
Required new working capital$30,000
Sales revenues, each year$580,000
Cash operating costs, each year$330,000
Expected pretax salvage value$50,000
Tax rate35.0%

• A) $13,965
• B) $15,226
• C) $16,910
• D) $17,882

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