Schweinsberg Corporation Is Considering a Capital Budgeting Project

Multiple Choice

Schweinsberg Corporation is considering a capital budgeting project. The project would require an investment of $120,000 in equipment with a 4 year expected life and zero salvage value. The company uses straight-line depreciation and the annual depreciation expense will be $30,000. Annual incremental sales would be $230,000 and annual incremental cash operating expenses would be $180,000. The company's income tax rate is 30% and the after-tax discount rate is 15%. The company takes income taxes into account in its capital budgeting. Assume cash flows occur at the end of the year except for the initial investments. Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:

A) $22,800
B) $125,664
C) $56,000
D) $5,664