A Capacity Alternative Has an Initial Cost of $50,000 and Cash

question 90

Multiple Choice

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years. If the cost of capital is 5 percent, the net present value of this investment is

• A) greater than $80,000
• B) greater than $130,000
• C) less than $30,000
• D) Impossible to calculate, because no interest rate is given.
• E) Impossible to calculate, because variable costs are not known.

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