1) A company invests in a new project that requires an initial capital outlay of $852790....

1) A company invests in a new project that requires an initial capital outlay of $852790. The project will generate annual net cash flows of $145612 over a period of 8 years. The after-tax cost of capital is 9%. In addition, a working capital outlay of $94620 will be required. This working capital outlay will be recovered at the end of the project’s life.

What is the net present value of the project?

Select one:

a. $-141474

b. $-93987

c. $312106

d. $-46854

2) Data relating to Randall Ltd.’s single product are as follows:

	Selling price	$5.16
	Direct materials	0.82
	Direct labour	0.85
	Overhead (60% fixed)	0.99
	Gross Profit	$2.5

The company currently produces 56699 units.

Randall Ltd. is considering purchasing a new machine that is expected to decrease variable costs by 14%. The expected useful life of the new machine is 11 years.

Assuming a weighted average cost of capital of 8%, what is the net present value of the increase in contribution margin relating to this investment?

Select one:

a. $117076

b. $191826

c. $7034

d. There is a decrease in the contribution margin.

Solutions

Expert Solution

ekkarill92 answered 9 months ago

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