A Company Facing an Interest Rate of 8% Must Choose

question 41

Multiple Choice

A company facing an interest rate of 8% must choose among projects offering the following four-year cash flows.If the company is employing the net present value criterion,which project should they choose?

• A)$25,000 in year 1;$15,000 in year 2;$10,000 in year 3;and $5,000 in year 4
• B)$5,000 in year 1;$5,000 in year 2;$20,000 in year 3;and $30,000 in year 4
• C)$15,000 in year 1;$15,000 in year 2;$15,000 in year 3;and $15,000 in year 4
• D)$5,000 in year 1;$5,000 in year 2;$25,000 in year 3;and $25,000 in year 4

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Definitions:

Short-Run Phillips Curve

A curve that illustrates the inverse relationship between the rate of inflation and the unemployment rate in the short term, suggesting that lower unemployment comes with higher inflation.

Long-Run Phillips Curve

A concept suggesting that in the long term, there is no trade-off between inflation and unemployment, as opposed to the short-run Phillips curve.

Disinflation

A reduction in the rate of inflation, characterized by a slowing down in the rate at which prices increase over time.

Short-Run Phillips Curve

A graphical representation that shows an inverse relationship between the rate of inflation and the unemployment rate in the short-term.