Johnson Corp A)$125910
B)$165600

question 30

Multiple Choice

Johnson Corp.has an 8% required rate of return.It's considering a project that would provide annual cost savings of $50000 for 5 years.The most that Johnson would be willing to spend on this project is $\begin{array} { c c c } \underline{\text { Year } }& \begin{array} { c } \text { Present Value } \\\underline{\text { of } 1 \text { at } 8 \%}\end{array} & \begin{array} { c } \text { PV of an Annuity } \\\underline{\text { of } 1 \text { at } 8 \%}\end{array} \\1& .926 & .926 \\2 & .857 & 1.783 \\3 & .794 & 2.577 \\4 & .735 & 3.312 \\5 & .681 & 3.993\end{array}$

• A)$125910.
• B)$165600.
• C)$199650.
• D)$34050.

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Definitions:

ESOs

Employee Stock Options refer to the rights given to employees, included in their remuneration package, enabling them to buy shares of the company stock at a predetermined price.

Guarantee

A formal promise or assurance, typically in writing, that certain conditions will be fulfilled or that a product will meet a specified level of quality.

American Call Option

A type of options contract that gives the holder the right, but not the obligation, to buy a specific amount of a security at a specified price within a specified time period.

Underlying Asset

The specific security, commodity, or other financial instrument that a financial derivative, such as an option or futures contract, is based upon.