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Mideque, inc. is considering a project to produce pens. It is estimates that the initial cost of the equipment including transportation installation and so forth
Mideque, inc. is considering a project to produce pens. It is estimates that the initial cost of the equipment including transportation installation and so forth will be $24,000. Mideque also estimates that the revenue (sales) each year over the five-year life of the project will be $15,000. the other yearly expenses (e.g., COGS, wages and salaries, etc) will be $7,000. Mideque will finance $9,000 by loan with an interest rate of 15% per year. The loan will be repaid at the rate of $2,000 per year plus interest on the remaining balance each year. Mideque uses straight-line depreciation, and the equipment will have no salvage value at the end of its life. Assume a corporate-profits tax rate of 50%.
Assume that the working capital requirement will be $2,000 and that the IRS allows an investment tax credit of 1 percent for this kind of project. Also, assume that at the end of the life of this project the company discovers that the equipment must be recycled for $3,000. Compute the initial investment.
Options
A. 23080
B. 24080
C. 25760
D. 26000
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