Determine the Net Present Value (NPV) of an Investment Decision

question 24

Multiple Choice

Determine the net present value (NPV) of an investment decision to purchase a property for $90,000 that will generate annual cash flows of $10,000 per year for eight years and sell for $80,000 at the end of the eight year holding period, if the appropriate discount rate is 10%? (Note: assume payments are made at end of year)

• A) -$2,475
• B) - $609
• C) + $609
• D) +$2,475

---

Definitions:

Safety Stock

Extra inventory kept on hand to protect against stockouts caused by unpredictable demand or supply delays.

Lead Time

The total time taken from the initiation to the completion of a production process, including the time needed for all preparatory steps and actual manufacturing.

Kanban Size

The quantity of work or materials specified by a Kanban card in a pull-based inventory or production control system.

Setup Cost

The expenses incurred to prepare equipment or processes for manufacturing an order, including cleaning and tooling costs.