A Firm Is Considering a Project with an Annual Cash

question 28

Multiple Choice

A firm is considering a project with an annual cash flow of £240,000. The project would have an 8-year life, and the company uses a discount rate of 12 per cent. Ignoring income taxes, what is the maximum amount the company could invest in the project and have the project still be acceptable (rounded) ?

• A)£977,480
• B)£1,125,228
• C)£1,160,582
• D)£1,192,320

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Definitions:

Budget Constraint

An equation that represents all combinations of goods and services a consumer can afford, given their income and the prices of the goods.

Income

The financial gain earned or received over a period of time, typically through work, investments, or business ventures.

Apples

A fruit produced by an apple tree, commonly enjoyed worldwide and used in various culinary dishes.

Bananas

A tropical fruit that is elongated and curved, with soft pulpy flesh rich in starch, enclosed in a rind which may be green, yellow, or brown when ripe.