Sol's Sporting Goods Is Expanding,and as a Result Expects Additional

question 8

Multiple Choice

Sol's Sporting Goods is expanding,and as a result expects additional operating cash flows of $26,000 a year for 4 years.This expansion requires $39,000 in new fixed assets.These assets will be worthless at the end of the project.In addition,the project requires an additional $3,000 of net working capital throughout the life of the project; Sol expects to recover this amount at the end of the project.What is the net present value of this expansion project at a 16 percent required rate of return?

• A) $18,477.29
• B) $21,033.33
• C) $28,288.70
• D) $29,416.08
• E) $32,409.57
• F) None of the above.

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Definitions:

Consumer Price Index

An index that measures the change over time in the price of a basket of consumer goods and services, often used as a measure of inflation.

Real Wages

Wages adjusted for inflation, representing the purchasing power of income earned through work.

Base Year

A specific year chosen as a point of reference for comparison over time in economic analysis.

CPI (Consumer Price Index)

An index that measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.