Scott Is Considering a Project That Will Produce Cash Inflows

question 33

Multiple Choice

Scott is considering a project that will produce cash inflows of $2,100 a year for 4 years. The project has a 12 percent required rate of return and an initial cost of $5,000. What is the discounted payback period?

• A)2.97 years
• B)3.11 years
• C)3.26 years
• D)4.38 years
• E)never

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Definitions:

Economic Profit

The difference between a firm’s total revenue and its total costs, including both explicit and implicit costs.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision or choice.

Monetary Payments

Transactions involving the transfer of money in exchange for goods or services.

Price-Taker Market

A competitive market situation where individual sellers or buyers have no influence over the market price of a product.