BASIC INFORMATION: A three-year project will cost $60,000 to construct. This will be depreciated straight-line to zero over the three-year life. The price per unit sold is $20 and the variable cost per unit sold is $10. Fixed costs are $30,000 per year.

In addition to the BASIC INFORMATION, you find that a salvage company will pay you $10,000 for the assets at the end of year 3. The project will require an investment of $10,000 up front for net working capital. If you expect to sell 7,000 units per year, compute the NPV assuming a required return of 15% and a tax rate of 30%.
A) Less than $0
B) $11,347
C) $14,416
D) $18,807
E) More than $20,000

Question

BASIC INFORMATION: A three-year project will cost $60,000 to construct. This will be depreciated straight-line to zero over the three-year life. The price per unit sold is $20 and the variable cost per unit sold is $10. Fixed costs are $30,000 per year.

In addition to the BASIC INFORMATION, you find that a salvage company will pay you $10,000 for the assets at the end of year 3. The project will require an investment of $10,000 up front for net working capital. If you expect to sell 7,000 units per year, compute the NPV assuming a required return of 15% and a tax rate of 30%.
A) Less than $0
B) $11,347
C) $14,416
D) $18,807
E) More than $20,000

Quizplus · Accepted Answer

The Answer of BASIC INFORMATION: A three-year project will cost $60,000 to construct. This will be depreciated straight-line to zero over the three-year life. The price per unit sold is $20 and the variable cost per unit sold is $10. Fixed costs are $30,000 per year.

In addition to the BASIC INFORMATION, you find that a salvage company will pay you $10,000 for the assets at the end of year 3. The project will require an investment of $10,000 up front for net working capital. If you expect to sell 7,000 units per year, compute the NPV assuming a required return of 15% and a tax rate of 30%.
A) Less than $0
B) $11,347
C) $14,416
D) $18,807
E) More than $20,000

BASIC INFORMATION: a Three-Year Project Will Cost $60,000 to Construct