If a Project Has a Cost of $50,000 and a Profitability

question 4

Multiple Choice

If a project has a cost of $50,000 and a profitability index of 0.4, then:

• A)its cash inflows are $70,000
• B)the present value of its cash inflows is $30,000
• C)its IRR is 20 percent
• D)its NPV is $20,000

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Definitions:

Normal Profit

The minimum profit necessary for a company to remain competitive in the market; it corresponds to the opportunity cost of capital.

Product Price

The amount of money charged for a product or service, determined by factors such as cost of production, market demand, and competition.

Curve Steepness

The rate at which the slope of a curve increases or decreases, often used in economics to describe the sensitivity of one variable to another.

Maximizes Profits

The process or strategy whereby a firm adjusts its production and pricing to achieve the highest possible profit.