Assume That Your Required Rate of Return Is 12 Percent

question 86

Multiple Choice

Assume that your required rate of return is 12 percent and you are given the following stream of cash flows: $$\begin{array} { l c } \underline{ \text {Year } } & \underline{\text { Cash Flow} } \\1 & \$ 10,000 \\2 & 15,000 \\3 & 15,000 \\4 & 15,000 \\5 & 15,000 \\5 & 20,000\end{array}$$ If payments are made at the end of each period, what is the present value of the cash flow stream?

• A)$66,909
• B)$57,323
• C)$61,815
• D)$52,345
• E)$62,029

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Definitions:

Depreciation

The process of allocating the cost of a tangible asset over its useful life, representing the asset's consumption, wear and tear, or obsolescence.

Fixed Overhead

The total of all costs that do not vary with production level, including items such as rent, property taxes, and salaries of permanent staff.

Raw Material

The basic substances in their natural, modified, or semi-processed state, used as inputs for production.

Direct Labor

The labor costs directly associated with the production of goods or services, typically involving manufacturing or construction work.