A 5-Year Project Requires an Additional Commitment of $100,000 in Net

question 61

Multiple Choice

A 5-year project requires an additional commitment of $100,000 in net working capital.What is the 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 present value of $100,000, discounted at the firm's cost of capital, and "borrowed" for the life of the project.
• D) No opportunity cost is involved.

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Definitions:

Binding Price Floor

An enforced price limit by authorities that prevents prices from falling below a certain level, causing excess supply.

Surplus

A situation where the quantity supplied of a good exceeds the quantity demanded, often leading to a decrease in prices.

Market

A market is a venue where buyers and sellers meet to exchange goods, services, or financial instruments. It can be physical or virtual.

Price Ceiling

A price ceiling is a government-imposed limit on how high a price can be charged for a product, service, or commodity, aimed at protecting consumers from excessive prices.