Mae Chen, Manager of Chen Fabrics, Is Comparing Two Assumptions

question 85

Multiple Choice

Mae Chen, manager of Chen Fabrics, is comparing two assumptions about the terminal cash flow arising from an expansion project. The Year 7 cash flow is $250,000. One assumption is that subsequent cash flows are constant. An equally valid assumption is that subsequent cash flows will grow at a four percent rate. If Chen Fabrics' cost of capital is 11 percent, what is the difference in the calculation of the project's terminal value?

• A)Under $25,000
• B)Between $250,000 and $500,000
• C)Between $500,001 and $1,000,000
• D)Over 1,000,000

---

Definitions:

Coordinating

The process of organizing activities, tasks, or groups to ensure efficient functioning and achieve specific goals.

Identifying

The process of recognizing or establishing something as being a particular thing.

Replication

The process of duplicating or reproducing a study, experiment, or procedure to verify its results.

Milgram's Experiment

A psychological study conducted by Stanley Milgram in the 1960s to measure individuals' willingness to obey authority figures, even when asked to perform acts conflicting with personal conscience.