Question
A project manager is evaluating a project and initially forecasts that the project will lasts for four years and has its annual marketing and support
A project manager is evaluating a project and initially forecasts that the project will lasts for four years and has its annual marketing and support costs of $1,000,000 and its annual revenue of $10,000,000. The project pays a 40% tax rate on its pre-tax income and its cost of capital is 15%. While analysing a situation that competitors can run their big promotion programs during the projects life, the manager proposes one solution to the situation by increasing the marketing and support costs by 60% of the originally forecasted level and simultaneously lowering the forecasted revenue by 30% of the originally forecasted level. The change in the net present value (NPV) of the project is closest to:
| A. | -$6,166,753.26
| |
| B. | $6,166,753.26
| |
| C. | $6,656,717.44 | |
| D. | -$6,656,717.44
|
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Fundamentals of Corporate Finance
Authors: Berk, DeMarzo, Harford
2nd edition
978-0132148238
