Long live company is evaluating a project that produces 1,000 units of special pens per year forever. This project requires the initial investment of $40,000. The sales start from next year at price of $20. The cost per unit is $13. Inflation will affect the selling price and cost. Hence, they both grow at the rate of 2.5% per year. Weighted average cost of capital of the company is 12%. What is the NPV of the project if the company pays the tax at 35%? Whether the company needs to accept or reject the project? (a) $7,894.74: Accept (b) $47,894.74: Accept (c) $37,916.67: Accept (d) -$2,083.33: Reject

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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Long live company is evaluating a project that produces 1,000 units of special pens per
year forever. This project requires the initial investment of $40,000. The sales start from
next year at price of $20. The cost per unit is $13. Inflation will affect the selling price and
cost. Hence, they both grow at the rate of 2.5% per year. Weighted average cost of capital
of the company is 12%. What is the NPV of the project if the company pays the tax at 35%?
Whether the company needs to accept or reject the project?
(a) $7,894.74: Accept
(b) $47,894.74: Accept
(c) $37,916.67: Accept
(d) -$2,083.33: Reject

 

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