A Project Involves an Immediate Expenditure of $10 000, and Further

question 20

Multiple Choice

A project involves an immediate expenditure of $10 000, and further expenditures of $10 000 every year for the next four years. It will yield an income of $8 000 at the end of the first year, and this will increase by $8 000 a year. This is the only project the company has; it is taxed at 50%, and its after-tax MARR is 10%. Assume that losses cannot be carried forward to offset future income. What is the present worth of the project to the company?

• A)$7 452
• B)$9 342
• C)$12 296
• D)$15 251
• E)$27 552

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Definitions:

Interest Payment

The payment made to a lender by a borrower for the privilege of borrowing money, typically part of the return on a loan or bond.

Cash Dividend

A payment made by a company out of its profits to shareholders, usually in the form of cash.

Interest Paid

The total amount of interest expenses a borrower has paid over a certain period to lenders for the use of borrowed funds.

Dividends Paid

The part of a corporation's profits paid out to its shareholders, typically as cash or more stocks.