Calco Is a Multi-Divisional Firm with a Weighted Cost of Capital

question 41

Multiple Choice

Calco is a multi-divisional firm with a weighted cost of capital of 14 percent and a risk-adjusted discount rate for its can division of 17 percent.A planned expansion in the can division requires a net investment of $170,000 and results in expected cash inflows of $42,000 a year for seven years.Should Calco invest in this expansion?

• A)Yes, NPV = $10,096
• B)Yes, NPV = $9,896
• C)No, NPV = -$5,276
• D)No, NPV = -$9,896

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Definitions:

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price point, at a specific time.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded by consumers at those prices.

Marginal Utility

The additional satisfaction or usefulness obtained from acquiring or consuming one more unit of a product.

Market Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good that all consumers in a market are willing to purchase at each price level.