A Capacity Alternative Has an Initial Cost of $30,000 and Cash

question 107

Multiple Choice

A capacity alternative has an initial cost of $30,000 and cash flow of $20,000 for each of the next four years. If the cost of capital (i.e., interest rate) is 5 percent, the net present value of this investment is:

• A) greater than $80,000 but less than $110,000.
• B) greater than $110,000.
• C) less than $50,000.
• D) greater than $50,000.
• E) impossible to calculate, because variable costs are not known.

Understand how investment impacts economic growth.

Describe the conditions for full employment and how they relate to the production possibilities frontier.

Recognize the factors that can cause shifts in or movements along the production possibilities frontier.

Understand the role and characteristics of entrepreneurship in economic success.

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