A Project Requires an Investment of $900 Today

question 31

Multiple Choice

A project requires an investment of $900 today.It can generate sales of $1,100 per year forever.Costs are $600 for the first year and will increase by 20% per year.(Assume all sales and costs occur at year-end,i.e.,costs are $600 @ t = 1.) Ignore taxes and calculate the NPV of the project at a 12% discount rate.

• A)$65.00
• B)$57.51
• C)$100.00
• D)Cannot be calculated as g > rNPV = -900 + (1,100 - 600)/1.12 + (1,100 - (600 × 1.2))/(1.12^2)+ (1,100 - 600 (1.2^2))/(1.12)^3 + (1,100 - 600 (1.2^3))/(1.12^4)= $57.51).

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Definitions:

Sole Proprietor

A business owned and managed by one individual where there is no legal distinction between the owner and the business entity.

Creditor

An individual or entity to whom money or its equivalent is owed by another individual or entity, known as the debtor.

Professional Corporation

Identical to a business corporation in most respects. A professional corporation is formed by filing with the secretary of state, and it is managed by a board of directors, unless a statute permits it to be managed like a partnership. The rigid management structure makes the professional corporation inappropriate for some smaller professional practices.

Personal Liability

Legal responsibility of an individual to settle debts or legal judgments from their assets, not protected by business structures or limited liability.