A Five-Year Project Requires an Additional Commitment of $100,000 in Net

question 26

Multiple Choice

A five-year project requires an additional commitment of $100,000 in net working capital.What is the present value opportunity cost associated with this investment?

• A)$100,000
• B)the present value of $100,000, discounted at the firm's cost of capital
• C)the value of $100,000, netted against the discounted present value of the $100,000 of working capital returned at the end of the project
• D)no opportunity cost is involved

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Definitions:

Spot Market

An open financial market where commodities or financial instruments are exchanged and delivered right away.

Discount

To calculate the present value of some future amount.

Future

A standardized legal contract to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future.

Forward Market

A marketplace for financial contracts that are agreed upon now but settled at a future date.