Demirjian Inc

question 5

Multiple Choice

Demirjian Inc. is considering an investment project that would require an initial investment of $290,000 and that would last for 8 years. The annual cash receipts from the project would be $189,000 and the annual cash expenses would be $85,000. The equipment used in the project could be sold at the end of the project for a salvage value of $29,000. The company's tax rate is 30%. For tax purposes, the entire initial investment will be depreciated over 7 years without any reduction for salvage value. The company uses a discount rate of 13%.
-When computing the net present value of the project, what are the annual after-tax cash receipts?

• A) $56,700
• B) $104,000
• C) $132,300
• D) $147,571

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Definitions:

Controller

A senior financial officer in an organization responsible for overseeing accounting and financial reporting.

Contingency Plan

A strategy or plan developed to take into account unforeseen events or emergencies to mitigate their potential impact on operations.

Bankruptcy

Legal nonpayment of financial obligations.

Operations Period

The timeframe during which specific operational activities or processes are carried out.