Your Company Is Considering a Machine Which Will Cost R50,000

Multiple Choice

Your company is considering a machine which will cost R50,000 at Time 0 and which can be sold after 3 years for R10,000.R12,000 must be invested at Time 0 in inventories and receivables; these funds will be recovered when the operation is closed at the end of Year 3.The facility will produce sales revenues of R50,000/year for 3 years; variable operating costs (excluding depreciation) will be 40 percent of sales.No fixed costs will be incurred.Operating cash inflows will begin 1 year from today (at t = 1) .By an act of Congress, the machine will have depreciation expenses of R40,000, R5,000, and R5,000 in Years 1, 2, and 3 respectively.The company has a 40 percent tax rate, enough taxable income from other assets to enable it to get a tax refund on this project if the project's income is negative, and a 15 percent required rate of return.Inflation is zero.What is the project's NPV?

A) R7,673.71
B) R12,851.75
C) R17,436.84
D) R24,989.67
E) R32,784.25