A Project Costs $7 Million and Is Expected to Produce

question 66

Multiple Choice

A project costs $7 million and is expected to produce cash flows of $2 million per year for 10 years. The opportunity cost of capital is 16 percent. If the firm has to issue stock to undertake the project and issue costs are $0.5 million, what is the project's APV?

• A)$9.67 million
• B)$2.17 million
• C)$1.67 million
• D)$0.67 million

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Definitions:

Joint Tenants

A form of co-ownership where individuals share equal ownership of property and have the right of survivorship.

Fee Simple

The highest interest in land, equivalent to ownership; an estate granting possession for an infinite time.

Co-Ownership

A legal arrangement where two or more parties hold title to a specific property, sharing rights and responsibilities.

Crown

A reference to the state or the monarchy in a legal context, often used in commonwealth countries.