Project a Has a fiVe-Year Life and an Initial Cost

question 402

Multiple Choice

Project A has a five-year life and an initial cost of $2,000 and annual cash flows of $700 per year. Project B also has a five-year life and an initial cost of $3,000 with annual cash flows of $950 per
Year. Given this information, calculate the NPV that the IRR cross-over rate provides.

• A) ($594.16)
• B) ($216.48)
• C) $328.87
• D) $800.00
• E) $1,041.50

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Definitions:

Marginal Cost

The expense associated with manufacturing or providing an additional unit of an item or service.

Marginal Benefit

The additional satisfaction or utility gained by consuming one more unit of a good or service.

Diamond

A precious gemstone formed from carbon under high pressure and temperature, valued for its brilliance, clarity, and rarity.

Water

Water is a transparent, tasteless, odorless, and nearly colorless chemical substance that is essential for the survival of most known forms of life.