A Project Costs $14 Million and Is Expected to Produce

question 8

Multiple Choice

A project costs $14 million and is expected to produce cash flows of $4 million a year for
15 years. The opportunity cost of capital is 20%. If the firm has to issue stock to undertake the project and issue costs are $1 million, what is the project's APV?

• A) $3.7 million
• B) $4.5 million
• C) $4.7 million
• D) $3.0 million

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Definitions:

Profitability

The ability of a business to earn a profit, which is the surplus remaining after total costs are deducted from total revenue.

Flexible Benefit Plans

Employee benefit programs that allow workers to choose from a variety of pre-tax benefits to create a package tailored to their personal needs and preferences.

Goal Setting

The process of identifying specific, measurable, attainable, relevant, and time-bound objectives that guide individuals or teams.

Reward Systems

Structures implemented by organizations to recognize and reward employee performance, aiming to motivate and retain talent.