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respectively. Which project, or projects, if either, should be accepted and
why?
Project B; because it has the largest total cash inflow
Project A; because its NPV is positive while Project B’s NPV is negative
Project B; because it has a negative NPV which indicates acceptance
neither project; because neither has an NPV equal to or greater than its
initial cost
Project A; because it has the higher required rate of return
43. Flatte Restaurant is considering the purchase of a $11,000 soufflé
maker. The soufflé maker has an economic life of four years and will be
fully depreciated by the straight-line method. The machine will produce
2,500 soufflés per year, with each costing $2.90 to make and priced at
$5.75. Assume that the discount rate is 16 percent and the tax rate is 34
percent.
What is the NPV of the project? (Do not round intermediate calculations
and round your answer to 2 decimal places, e.g., 32.16.)
44. Down Under Boomerang, Inc., is considering a new three-year
expansion project that requires an initial fixed asset investment of $2.64
million. The fixed asset will be depreciated straight-line to zero over its
three-year tax life, after which it will be worthless. The project is estimated
to generate $2,060,000 in annual sales, with costs of $755,000. The tax
rate is 35 percent and the required return is 13 percent.
What is the project’s NPV? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
45. What is the net present value of a project with an initial cost of $36,900
and cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3,
respectively? The discount rate is 13 percent.
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FIN 571 Final Exam Guide (New)