Kresta Can Invest in a Scheme Which Will Pay $10,000

question 79

Multiple Choice

Kresta can invest in a scheme which will pay $10,000 at the end of each of the next four years.She must make an investment at the start of the first year of $32,000.Should she make this investment,given that the interest rate is 7%?

• A)Yes,because the net present value (NPV)is negative.
• B)Yes,because the net present value (NPV)is positive.
• C)No,because the net present value (NPV)is negative
• D)No because the net present value (NPV)is positive.
• E)No,because the net present value (NPV)is zero.

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Definitions:

Market Price

The price at which a good or service is offered in the marketplace.

Short-Run Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity supplied over a short period, when some production variables are fixed.

Marginal Cost Curve

A visual chart that illustrates the change in the expense associated with producing an extra unit of a product as the total output grows.

Average Variable Cost

The total variable costs divided by the quantity of output produced, reflecting the average cost of producing each unit excluding fixed costs.