Suppose a Manager of a Firm Is Considering Investing in a Piece

question 99

Multiple Choice

Suppose a manager of a firm is considering investing in a piece of equipment that will generate $20,000 in future operating profit each year for the next three years. The discount rate is 5 percent and the salvage value of zero. The equipment's current cost is $50,000 and this cost will be financed by the firm. If the tax rate on the firm's profit is 4 percent each year, what is the net present value of the equipment?

• A)- $2,581
• B)$2,286
• C)$3,569
• D)$4,464

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Definitions:

Fixed Exchange Rates

A system where the value of a currency is pegged to another currency, a basket of currencies, or a commodity such as gold, and does not fluctuate in the foreign exchange market.

Gold Standard

A monetary system in which the standard unit of currency is based on a fixed quantity of gold, ensuring stability and trust in currency value.

Balance of Trade Deficit

A Balance of Trade Deficit occurs when a country's imports of goods and services exceed its exports, indicating that more money is flowing out of the country to buy foreign goods than is coming in from the sale of domestic goods.

United States

A country in North America consisting of 50 states and a federal district, known for its significant economic and political influence globally.