A Business Is Expected to Generate the Following Cash Flows

question 151

Multiple Choice

A business is expected to generate the following cash flows over the next five years after which it will be dissolved. How much is the business worth today if the interest rate is 8%?

• A)$77,615
• B)$68,304
• C)$75,333
• D)$100,025

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Definitions:

Economic Order Quantity (EOQ)

A formula used by businesses to determine the optimal order quantity to minimize total inventory costs.

Carrying Costs

The total cost of holding inventory, which includes warehousing, insurance, spoilage, and opportunity costs.

Ordering Costs

Expenses associated with placing orders for inventory, including administrative expenses, delivery charges, and any other costs related to buying goods or services.

Carrying Costs

Carrying costs are the total expenses associated with holding or storing inventories over a certain period.