A Project Requires an Initial Investment in Equipment of $90,000

Multiple Choice

A project requires an initial investment in equipment of $90,000 and then requires an initial investment in working capital of $10,000 (at t = 0) . You expect the project to produce sales revenue of $120,000 per year for three years. You estimate manufacturing costs at 60 percent of revenues. (Assume all revenues and costs occur at year-end [i.e., t = 1, t = 2, and t = 3]) . The equipment depreciates using straight-line depreciation over three years. At the end of the project, the firm can sell the equipment for $10,000. The corporate tax rate is 21 percent and the cost of capital is 16.5 percent. Calculate the NPV of the project.

A) $9,826
B) $3,840
C) -$2,735
D) $4,848