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What is the NPV of this project?

What is the NPV of this project?

Essentials Of Investments
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
Section: Chapter Questions
Problem 1PS
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Crazy Burger Shop has the following investment opportunity:

  • Burger machinery at t=0 costs $6,000.
  • The cost of making burgers is $2,000 per year at t=1, t=2, and t=3.
  • The burger machinery is depreciated using the straight-line method to $1,500 over 3 years.
  • The market value of the burger machinery after three years is $2,600.
  • Estimated annual sales are $4,500 per year at t=1, t=2, and t=3.
  • The required return is 15%.
  • The tax rate is 18%.
  • Assume no working capital requirements.

What is the NPV of this project?

  A.

$259.97
  B.

$1,006.62
  C.

$876.44
  D.

$-702.92
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