If an Investment Costing $2000 Is Expected to Generate Real

question 47

Multiple Choice

If an investment costing $2000 is expected to generate real cash flows of $900 p.a.for three years and prices are expected to increase at a rate of 10% p.a. ,what is the real required rate of return if the nominal cost of capital is 15%?

• A)6%
• B)5%
• C)1.05%
• D)4.55%

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Definitions:

Entrepreneurial Process

A sequence of steps starting from ideation to the creation and management of a new business venture.

Competitive Market Economy

An economic system where a large number of buyers and sellers interact, resulting in the efficient allocation of resources through competitive pricing.

New Product

A good, service, or idea that has been recently introduced to the market, offering novel features or benefits to consumers.

Competitive Price-Searcher Market

A market structure where firms have some degree of market power in setting prices due to product differentiation, but still face competition from other firms.