A Project Costs $91,000 Today and Is Expected to Generate

question 107

Multiple Choice

A project costs $91,000 today and is expected to generate cash flows of $11,000 per year for the next 20 years. The firm has a cost of capital of 8 percent. Should this project be accepted, and why?

• A) Yes, the project should be accepted since it has a NPV = $15,391.23.
• B) Yes, the project should be accepted since it has a NPV = $13,610.89.
• C) Yes, the project should be accepted since it has a NPV = $16,999.62.
• D) None of the options are correct.

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Definitions:

Public Saving

The portion of national saving that is accumulated by the government sector, often reflected as the difference between government revenues and expenditures.

National Saving

The total amount of savings generated within a country, which is the sum of private savings by households and businesses plus public savings from the government’s budget.

Tax Revenue

Tax revenue is the income gained by governments through taxation, a primary source of income used to fund public services and obligations.

National Saving

The total amount of savings generated within a country, consisting of both private savings by households and public savings by the government.