A Project Costs $15 Million and Is Expected to Produce

question 1

Multiple Choice

A project costs $15 million and is expected to produce cash flows of $3 million a year for 10 years.The opportunity cost of capital is 14%.If the firm has to issue stock to undertake the project and issue costs are $500,000,what is the project's APV?

• A)-$352,000
• B)$148,350
• C)$648,350
• D)$952,000

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Definitions:

Profit-Maximizing Level

The level of production at which a firm achieves the maximum possible profit.

Unit Elastic

A situation where a one percent change in price leads to an exactly one percent change in the quantity demanded or supplied.

Profit Maximizing

The process or strategy of setting production levels or prices to achieve the highest possible profit given production costs and market conditions.

Price

The amount of money required to purchase a good, service, or asset.