At a Discount Rate of 6 Percent, What Is the Net

question 24

Multiple Choice

At a discount rate of 6 percent, what is the net present value of an investment project expected to yield $1,000 per year (to be received at year end) for the next three years?

• A) $3,000
• B) $2,829
• C) $2,673
• D) There is insufficient information to determine whether the project should be undertaken.

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Definitions:

Profit Margin

A financial metric indicating the percentage of revenue that remains as profit after accounting for costs and expenses.

Retention Ratio

The fraction of net profit not disbursed as dividends, instead held within the company.

EBIT

Earnings Before Interest and Taxes is a financial indicator that calculates a company's earnings by excluding interest and income tax expenses.

Interest Expense

The cost incurred by an entity for borrowing money, typically expressed as an annual rate applied to the borrowed principal.