Question

A project requires an initial investment of $350,000 and will return $140,000 each year for six years.

Factors: Present Value of $1		Factors: Present Value of an Annuity
(r = 10%)		(r = 10%)
Year 0	1.0000
Year 1	0.9091	Year 1	0.9091
Year 2	0.8264	Year 2	1.7355
Year 3	0.7513	Year 3	2.4869
Year 4	0.6830	Year 4	3.1699
Year 5	0.6209	Year 5	3.7908
Year 6	0.5645	Year 6	4.3553

If taxes are ignored and the required rate of return is 10%, what is the project's net present value (rounded to the nearest dollar)?

Group of answer choices

$259,742

$114,803

$340,000

$109,742

A project requires an initial investment of $350,000 and will return $140,000 each year for six years.

Factors: Present Value of $1		Factors: Present Value of an Annuity
(r = 10%)		(r = 10%)
Year 0	1.0000
Year 1	0.9091	Year 1	0.9091
Year 2	0.8264	Year 2	1.7355
Year 3	0.7513	Year 3	2.4869
Year 4	0.6830	Year 4	3.1699
Year 5	0.6209	Year 5	3.7908
Year 6	0.5645	Year 6	4.3553

Ignoring qualitative issues and income taxes, should the company invest in this project?

Group of answer choices

No, because the net present value shows a return that is less than the company's required rate of return.

There is not enough quantitative information to answer this question.

No, because the internal rate of return cannot be calculated.

Yes, because the net present value shows a return that is above the company's required rate of return.

Clothing Products LLC manufactures shirts. The company is interested in outsourcing production to a reputable manufacturing company that can supply the shirts for $10 per unit. Clothing Products LLC produces 20,000 shirts each year. Variable production costs are $4 per unit and annual fixed costs are $160,000. If production is outsourced, all variable costs and 60 percent of annual fixed costs will be eliminated. Ignoring qualitative factors and income taxes, which is the best alternative?

Group of answer choices

Producing the shirts internally is the best option and results in $24,000 in savings compared to outsourcing production.

Outsourcing production is the best option and results in $64,000 in savings.

Producing the shirts internally is the best option and results in $64,000 in savings compared to outsourcing production.

Outsourcing production is the best option and results in $24,000 in savings.

Answer 1