Michelotti Inc. is considering an investment project that would require an initial investment of $140,000 and that would last for 7 years. The annual cash receipts from the project would be $105,000 and the annual cash expenses would be $47,000. The equipment used in the project could be sold at the end of the project for a salvage value of $7,000. The company's tax rate is 30%. For tax purposes, the entire initial investment will be depreciated over 5 years without any reduction for salvage value. The company uses a discount rate of 19%.
-When computing the net present value of the project,what are the annual after-tax cash receipts?

Question

Quizplus · Accepted Answer

To compute the net present value, we need to subtract the initial investment from the present value of the annual after-tax cash receipts. According to the information given in the question, the annual after-tax cash receipts are $73,500. Therefore, the best choice is A.