A Project Costs $15 Million and Is Expected to Produce

question 5

Multiple Choice

A project costs $15 million and is expected to produce cash flows of $3 million a year for
10 years. The opportunity cost of capital is 14%. If the firm has to issue stock to undertake the project and issue costs are $500,000, what is the project's APV (approximately) ?

• A) -$352,000
• B) $148,350
• C) $648,350
• D) $952,000

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Definitions:

Direct Labor-hours

A measure of the total hours worked by employees who are directly involved in the production of goods or services.

Variable Maintenance Costs

Costs that vary in direct proportion to the usage of machinery or equipment, often related to repairs and upkeep.

Fabrication

The process of manufacturing complex items from raw materials or components, typically involving several stages of assembly.

Assembly Departments

Departments within a manufacturing facility where parts are assembled into final products.