What Is the Net Present Value of a Project That

question 6

Multiple Choice

What is the net present value of a project that has an initial cost of $40,000 and produces cash inflows of $8,000 a year for 11 years if the discount rate is 15 percent?

• A)$798.48
• B)$1,240.23
• C)$1,869.69
• D)$2,111.41
• E)$2,470.01

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Definitions:

Fixed Operating Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance.

Variable Costs

Costs that change in proportion to the level of activity or volume of goods produced.

Straight-Line Depreciation

An approach to apportion the cost of a tangible asset throughout its operational life in equal yearly sums.

Net Present Value

A financial calculation used to determine the value of a series of future cash flows by discounting them back to their value in today's dollars.