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

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Definitions:

Monetary Policy

Actions of a central bank, currency board, or other regulatory committees that determine the size and rate of growth of the money supply, which in turn affects interest rates.

Fiscal Policy

Refers to government actions regarding taxation and spending aimed at influencing a country's economy.

Monetary Growth Rate

The rate at which the amount of money in circulation increases over a specific period.

Money Supply

The lump sum of monetary assets available in an economy at a particular point.