Using a Required Rate of Return of 12 -What Is This Project's NPV If the Initial Capital Investment

question 98

Multiple Choice

Using a required rate of return of 12%.
$\begin{array} { | c | r | } \hline { \text { Perpetual Power Machine Co. - Purchase of a New High Machining Tool } } \\\hline \text { Year } & \text { Cash Flow } \\\hline \text { Year 1 } & \$ 500 \\\hline \text { Year 2 } & \$ 500 \\\hline \text { Year 3 } & \$ 3,000 \\\hline \text { Year 4 } & \$ 3,000 \\\hline \text { Year 5 } & \$ 10,000 \\\hline\end{array}$
-What is this project's NPV if the initial capital investment is $7,162?

• A) $3,399
• B) $12,000
• C) $8,500
• D) $3,000

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Definitions:

Payment Extension

A prolongation of the period over which a debt or loan is to be repaid.

Later Date Payment

A payment that is scheduled to be made after the usual due date.

Equivalent Value

The amount that represents the same value when compared under different conditions or assumptions.

Due Today

The amount of money that must be paid or is payable today.