In a capital budgeting analysis, what is the cash outflow at time 0 (initial investment) that Beast should use to compute the net present value?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Beast Inc. has a new project available which is expected to generate annual sales of 200,000 units for the next 8 years and then be discontinued. New equipment will be purchased for $1,600,000 and cost $200,000 to install. The equipment will be depreciated on a double declining basis over its useful life. At the end of the eighth year, it will cost $50,000 to remove the equipment, which can be sold for $150,000. Additional working capital of $400,000 will be required immediately and needed for the life of the product. Annual indirect costs will increase by $300,000. Beast's effective tax rate is 40%.

In a capital budgeting analysis, what is the cash outflow at time 0 (initial investment) that Beast should use to compute the net present value?

a. $1,750,000.
b. $1,800,000.
c. $2,200,000.
d. $1,600,000.

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