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

question 68

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 approximately

• A) $20,920.
• B) $26,160.
• C) $49,840.
• D) $70,920.
• E) $106,990.

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Definitions:

Relevant Activity Base

A factor that causes changes in the behavior of costs, used to allocate fixed costs to cost objects effectively.

Decision-Making Needs

Requirements or information essential for making informed choices or judgments in various situations.

Management

The coordination and administration of tasks to achieve a company's objectives, involving planning, organizing, leading, and controlling resources.

Fixed Cost Per Unit

The cost that does not change with the level of production or sales, divided by the number of units produced, to determine the fixed cost allocated to each unit.