MrsBiggs Invested in a Business That Will Generate the Following

question 21

Multiple Choice

Mrs.Biggs invested in a business that will generate the following cash flows over a three-year period.Use Appendix A. If Mrs.Biggs' marginal tax rate over the three-year period is 30% and she uses a 6% discount rate,compute the NPV of the transaction.

• A)$61,453
• B)$52,771
• C)$47,781
• D)None of the above.

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Definitions:

Bonds Payable

Bonds payable refers to the long-term debt a company owes to bondholders, representing the amount that is due to be paid back at the bond's maturity date along with periodic interest payments.

Straight-Line Method

A depreciation method that allocates an equal amount of the asset's cost to each accounting period of its useful life.

Effective-Interest Method

A technique of calculating the amortized cost of a bond and the amount of interest expense over its life, correcting for any differences between the issue price and the redemption value.

Interest Expense

Interest expense is a cost incurred by an entity for borrowed funds, reflected on the income statement.