How Much Could NPV Be Affected by a Worst-Case Scenario

question 54

Multiple Choice

How much could NPV be affected by a worst-case scenario of 25 percent reduction from the $3 million in expected annual cash flows on a five-year project with 10 percent cost of capital? (use the values in dollar)

• A)$2,843,090
• B)$3,750,000
• C)$4,578,825
• D)$6,155,274

Understand the purpose and components of general-purpose financial statements.

Recognize the importance and methods of analyzing a company's performance and financial condition over time.

Understand the significance of financial ratios in evaluating a company's performance.

Identify key financial ratios including price-earnings ratio and dividend yield.

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Definitions:

Quantity Demanded

The specific amount of a good or service consumers are willing to buy at a given price, holding other factors constant.

Elasticity Coefficient

A measure that quantifies the responsiveness of the quantity demanded or supplied of a good to a change in one of its determinants, such as price.

Relative Change

The measure of change in a variable relative to its initial value, often expressed as a percentage.

Inelastic

Describes a situation where the quantity demanded or supplied of a good or service changes by a relatively small amount in response to changes in its price.