A Capacity Alternative Has an Initial Cost of $50,000 and Cash

question 71

Multiple Choice

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years. If the cost of capital is 5%, the net present value of this investment is

• A) greater than $80,000.
• B) greater than $130,000.
• C) less than $30,000.
• D) impossible to calculate, because no interest rate is given.
• E) impossible to calculate, because variable costs are not known.

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Definitions:

Progressive Income Tax

A tax system where the tax rate increases as the taxable income increases, aimed at redistributing income more equitably.

Ability-to-Pay Principle

A taxation principle suggesting that taxes should be levied based on an individual's or entity's ability to pay, often implying higher rates for higher income levels.

Tax Equity

The fairness of a tax system, judged by how evenly or proportionately tax burdens are distributed among different groups of taxpayers.

Economic Income

The total value of all income received by an individual or entity, including both monetary returns and the monetary value of non-monetary gains.