Question
Urgent Question Finding NPV (Multiple Choice): Your company, Aras Holding is considering a machine that will cost $5,000 at Time 0 and which can be
Urgent Question Finding NPV (Multiple Choice):
Your company, Aras Holding is considering a machine that will cost $5,000 at Time 0 and which can be sold after 4 years for $200. To operate the machine, $500 must be invested at Time 0 in inventories; these funds will be recovered when the machine is retired at the end of Year 4. The machine will produce sales revenues of $3,000/year for 4 years; variable operating costs (excluding depreciation) will be 50 percent of sales. Interest expenses are $600 per year. Operating cash inflows will begin 1 year from today (at Time 1). The machine will have depreciation expenses of $1,250 each year. Aras Holding has a 30 percent tax rate, enough taxable income from other assets to enable it to get a tax refund from this project if the project's income is negative, and an 8 percent cost of capital. Inflation is zero. What is the NPV of the project?
1. | NPV=$-309.80 | |
2. | NPV=$7.89 | |
3. | NPV=$59.02 | |
4. | NPV=$66.28 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started