A Project Costs $15 Million and Is Expected to Produce

question 23

Multiple Choice

A project costs $15 million and is expected to produce cash flows of $3 million a year for 10 years. The opportunity cost of capital is 14 percent. If the firm has to issue stock to undertake the project and issue costs are $500,000, what is the project's APV?

• A)−$352,000
• B)$148,350
• C)$648,350
• D)$952,000

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Definitions:

Balance Sheet

A summary report of a business's assets, debts, and equity held by shareholders, captured at a certain date to represent the organization's fiscal status.

Monthly Rent

The regular payment made to a landlord or property owner for the use of premises or equipment for a month.

Office Supplies

Items used in an office for daily operations, such as paper, pens, and staplers, typically classified as short-term assets.

Adjusting Entry

A journal entry made at the end of an accounting period to allocate income and expenditure to the correct period.