A New Asset Is Expected to Provide Service Over the Next

question 106

Multiple Choice

A new asset is expected to provide service over the next four years. It will cost $500,000, generates annual cash inflows of $150,000, and requires cash operating expenses of $30,000 each year. In addition, a $10,000 overhaul will be needed in year 3.

If the company requires a 10% rate of return, the net present value of this machine would be:

• A) $(127,110), and the machine meets the company's rate-of-return requirement.
• B) $(127,110), and the machine does not meet the company's rate-of-return requirement.
• C) $(129,600), and the machine does not meet the company's rate-of-return requirement.
• D) $(151,700), and the machine meets the company's rate-of-return requirement.
• E) None of the answers is correct.

---

Definitions:

Illusory Correlation

A cognitive bias where people falsely perceive an association between two unrelated events or variables.

Random Assignment

A procedure in experimental designs that ensures each participant has an equal chance of being placed into any group, reducing biases.

Central Tendency

A statistical measure that identifies a single value as representative of an entire distribution of data, often using the mean, median, or mode.

Average Scores

A statistical measure that represents the central or typical value in a set of data, calculated by dividing the sum of all values by the number of values.