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:

Tabula Rasa

Tabula rasa is a philosophical concept suggesting that the human mind starts as a blank slate, with knowledge and character formed through experience.

Proximal Stimulus

The physical energy from a stimulus as it directly interacts with sensory receptors.

Retinal Image

The visual picture formed on the retina, the light-sensitive surface at the back of the eye, enabling sight.

Optic Nerve

A cranial nerve that transmits visual information from the retina to the brain.