A Snow Plough Will Generate a Net Income of €2,000

question 24

Multiple Choice

A snow plough will generate a net income of €2,000 per year for its owner. After 8 years, the plough will be worn out and have zero value. The owner has worked out the present value of the net income the snow plough will generate using an interest rate of 10%. Which of the following statements is NOT true?

• A) The present value of the final year's net income is less than €1,100.
• B) The owner would sell the snow plough if she received an offer of €13,000 for it.
• C) The owner would sell the snow plough if she received an offer of €3,500.
• D) The present value of the income of the net income the snow plough will generate over the 8 year period is more than €10,000.

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Definitions:

Standard Deviation

A measure of the dispersion or variation in a set of values, indicating how much the values deviate from the mean on average.

Perfectly Positively Correlated

A statistical term describing two variables that move in the same direction with a correlation coefficient of +1, indicating a perfect positive linear relationship.

Cycle Inventory

Inventory that a company holds to meet its normal sales operations, varying over the course of an operating cycle or period.

Forecasted Demand

An estimate of the quantity of a product or service that consumers will purchase in the foreseeable future.