Question
. UBY, Inc. is considering a new project to produce innovative household gadgets. The project has a 4-year life and requires an initial fixed asset
. UBY, Inc. is considering a new project to produce innovative household gadgets. The project has a 4-year life and requires an initial fixed asset investment of $1.12 million. The project is estimated to generate $1,256,000 in annual sales, with annual costs of $665,000. The fixed asset will be depreciated straight-line to zero over its 4-year project life, after which time it will have a market value of $160,000. The project requires additional inventory of $150,000 and will increase receivables by $100,000 and payables by $50,000.
The tax rate is 40 percent and the required return for the project is 12 percent. What is the net present value for this project?
A. $158,237
B. $224,331
C. $285,341
D. $326,014
E. None of the above
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