General Studies · Capital Budgeting and NPV
Sena Co is evaluating a 4-year project. It spent $50,000 on a feasibility study. A new machine costs $800,000, with a Year 4 salvage value of $100,000. The factory space could otherwise be rented for $40,000/year. Immediate working capital of $60,000 increases by 5% annually, with the full balance recovered at the project's end. Tax is 30% in arrears; 25% reducing balance tax-allowable depreciation applies. Which option correctly treats these items for Net Present Value (NPV) calculation?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
Share:
- 1The feasibility study is an initial outflow; the factory rent is a relevant inflow; working capital is recovered at Year 4 but adjusted for inflation.
- 2The feasibility study is ignored; the lost rent (after-tax) is an opportunity cost; the full Year 0 working capital and all subsequent increases are recovered at the end of Year 4.✓
- 3The feasibility study is ignored; the lost rent (after-tax) is an opportunity cost; incremental working capital increases are outflows in Years 1-3.
- 4The feasibility study is an initial outflow; the lost rent is ignored as a non-cash item; working capital is recovered in full at Year 4.
Correct answer
The feasibility study is ignored; the lost rent (after-tax) is an opportunity cost; the full Year 0 working capital and all subsequent increases are recovered at the end of Year 4.
Download Single Question PDF
Save this question and verified answer as a clean study sheet with live clickable link.
👥
Share with Friends & Study Groups
Challenge your peer aspirants on WhatsApp or Telegram to solve this question!
Online Test Series
Start Free Mock Test →Preparing for General Studies?
Practice full-length mock tests with real exam timers, instant score analysis, and all-India ranking.
Chapter Practice
Practice Capital Budgeting and NPV MCQs →Want more practice questions on Capital Budgeting and NPV?
Solve complete topic-wise tests with detailed solutions on GkGet.
Related Practice Questions
Recommended practice questions in General Studies · Capital Budgeting and NPV