Oswego Industries is considering investing in a new project and has prepared the incremental earnings forecast and other information provided below:

	Year 0	Year 1	Year 2	Year 3
Revenue		$840,000	$840,000	$840,000
Cost of Goods Sold		320,000	320,000	320,000

Gross Profit		520,000	520,000	520,000
Selling, General, & Admin (SG&A)		110,000	110,000	110,000
Depreciation		180,000	180,000	180,000

EBIT		230,000	230,000	230,000
Income Tax (21%)		48,300	48,300	48,300

Incremental Earnings		181,700	181,700	181,700
Capital Expenditures	540,000

In addition to the

$540,000

in capital expenditures, the project will require an immediate (T=0) increase in net working capital of

$13,000.

This level of NWC will be maintained for the life of the project and fully recovered at the end of Year 3.

Question A: If Oswego Industries uses a cost of capital of

14%,

what is the NPV of this project?

A.

$848,509

B.

$303,960

C.

$295,509

D.

$545,100

Question B: If Oswego Industries, instead of using straight-line depreciation, uses an accelerated depreciation methodology when evaluating potential investments, what will be the effect on the calculated NPV of the project described above?

A.

If an accelerated depreciation methodology is used, the calculated NPV would DECREASE.

B.

If an accelerated depreciation methodology is used, the calculated NPV would INCREASE.

C.

If an accelerated depreciation methodology is used, the calculated NPV would be UNCHANGED.