Recently,DB Miller & Co

question 14

Multiple Choice

Recently,DB Miller & Co.implemented a positive NPV project.The project has a projected life of 4 years and an estimated rate of return of 14 percent.The project can be expanded by simply incurring additional variable costs or shut down without incurring any penalties or additional costs.Today,the government ruled that projects of this type are now subject to a new per unit tax,the total cost of which will exceed the projected NPV.The most logical move for the company would be to

• A)continue the project as planned since the NPV was positive and the project has been implemented.
• B)suspend the project until the following year to allow the company time to absorb the additional cost.
• C)double the size of the project as soon as it is feasible to do so.
• D)end the project immediately unless the additional tax can be passed on to Miller & Co.customers.
• E)decrease the required return on the project so the NPV can remain positive given the additional cost.

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Definitions:

Economic Stability

A state where an economy experiences steady growth, low inflation, and low unemployment rates over time.

Catching-up Growth

Economic strategy aimed at enabling developing countries to achieve rapid economic growth and reach the standards of more developed countries.

Brazil, Russia, India, China

Collectively known as BRIC, these countries were identified as fast-growing developing economies with significant influence on regional and global affairs.

Long-reaching Effects

Impacts or consequences of an event, decision, or policy that extend over a long period of time or into future generations.