A Five-Year Project Requires an Additional Commitment of $100,000 in Net

question 26

Multiple Choice

A five-year project requires an additional commitment of $100,000 in net working capital.What is the present value opportunity cost associated with this investment?

• A)$100,000
• B)the present value of $100,000, discounted at the firm's cost of capital
• C)the value of $100,000, netted against the discounted present value of the $100,000 of working capital returned at the end of the project
• D)no opportunity cost is involved

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Definitions:

Activity Base

A measure upon which the allocation of costs is based in activity-based costing, often relating to a metric that causes costs to occur such as machine hours or labor hours.

Cost Behavior

The way in which costs change in relation to variations in an organization’s activity level.

Variable Costs

Costs that change in proportion to the level of production or sales, such as raw materials and direct labor.

Activity Level

A measurement of the volume of production or the quantity of services provided.