Alfarsi Industries Uses the Net Present Value Method to Make

question 102

Multiple Choice

Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments.The company is considering two different investments.Each require an initial investment of $15,000 and will produce cash flows as follows:
The present value factors of $1 each year at 15% are:

The present value of an annuity of $1 for 3 years at 15% is 2.2832
-The net present value of Investment B is:

• A)$780.
• B)$(15,780).
• C)$9,000.
• D)$39,797.
• E)$(5,918).

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Definitions:

Inventory

The total amount of goods a company has in stock, including raw materials, work-in-process, and finished goods.

Variable Costs

Expenses that change in proportion to the activity of a business, such as materials and labor costs.

Relevant Costs

Costs that will be affected by a decision in a particular situation, excluding sunk costs and costs that do not differ between alternatives.

Unprofitable Product Lines

Product categories or items that do not generate a profit and may result in a financial loss for the company.