A Project Manager Is Using the Net Present Value Method

question 72

Multiple Choice

A project manager is using the net present value method to make the final decision on which project to undertake.The company has a 12% required rate of return and expects a 3% rate of inflation for the following four years.What is the NPV of a project that has cash flows as shown in the table? $$\begin{array} { | l | l | } \hline \text { Year } & \text { Cash Flow } \\\hline 0 & - \$ 250,000 \\\hline 1 & \$ 50,000 \\\hline 2 & \$ 60,000 \\\hline 3& \$ 70,000 \\\hline 4 & \$ 80,000 \\\hline\end{array}$$

• A)-$9,762
• B)-$56,859
• C)-$69,387
• D)-$98,780

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Definitions:

Coase Theorem

A principle that asserts that if property rights are clearly defined and transaction costs are negligible, parties will negotiate to resolve conflicts in a way that maximizes economic efficiency.

Smoke-Free Air

Policies or regulations that prohibit smoking in public places to protect people from the harmful effects of secondhand smoke.

Bargaining

The process of negotiating the terms of a transaction or agreement between parties with differing interests.

Coase Theorem

An economic theory that suggests that if property rights are well-defined and transaction costs are minimal, voluntary negotiations will lead to the efficient resolution of disputes regarding resource allocation.