You Have Been Asked to Evaluate a Project with Infinite

question 18

Multiple Choice

You have been asked to evaluate a project with infinite life. Sales and costs are projected to be $1000 and $500 respectively. There is no depreciation and the tax rate is 30%. The real required rate of return is 10%. The inflation rate is 4% and is expected to be 4% forever. Sales and costs will increase at the rate of inflation. If the project costs $3000, what is the NPV?

• A) $500.00
• B) $1629.62
• C) $365.38
• D) None of the above

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Definitions:

Investment Project

A planned set of capital expenditures and activities aimed at generating future benefits or returns.

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return.

Loanable Funds

The funds available within an economy for borrowing, influencing interest rates and capital availability.

Interest Rate

Fees assessed by a lending party on a borrowing party for asset usage, expressed in terms of the principal's percentage.