Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. No change in net operating working capital would be required. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. The marketing manager does not think it is necessary to adjust for inflation since both the sales price and the variable costs will rise at the same rate, but the CFO thinks an inflation adjustment is required. What is
the difference in the expected NPV if the inflation adjustment is made versus if it is not made? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC10.0% Net investment cost (depreciable basis)$201,400 Units sold48,200 Average price per unit, Year 1$28.50 Fixed op. cost excl. depr. (constant)$153,000 Variable op. cost/unit, Year 1$20.40 Annual depreciation rate33.333% Expected inflation4.00% Tax rate40.0% ?
A. $461,378
B. $433,696
C. $456,765
D. $410,627
E. $373,717
Answer: A
You might also like to view...
A foreign limited partnership is one that was formed in a different state
Indicate whether the statement is true or false
In most instances, one person can easily observe and evaluate an employee's performance.
Answer the following statement true (T) or false (F)
Clearview 3D HD TV Company grants its agent Blossom an exclusive territory in which to sell Clearview products. Clearview cannot compete with Blossom in that territory under the principal's duty of
A. avoidance. B. cooperation. C. indemnification. D. reimbursement.
The Securities Exchange Act of 1934 is a one-time disclosure law
Indicate whether the statement is true or false