An Initial Investment of $400,000 Is Expected to Produce an End-Of-Year

question 10

Multiple Choice

An initial investment of $400,000 is expected to produce an end-of-year cash flow of $480,000.What is the NPV of the project at a discount rate of 20%?

• A)$176,000
• B)$80,000
• C)$0 (zero)
• D)$64,000

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Definitions:

TVC

TVC, or Total Variable Cost, encompasses the expenses that change in direct relation to the level of output produced, such as raw materials and labor costs.

TFC

Total Fixed Costs, which are expenses that do not change regardless of the level of production or business activity.

Marginal Cost

Marginal cost is the change in total production cost that arises when the quantity produced is incremented by one unit.

Variable Inputs

Inputs in production that can be adjusted based on the production volume, including labor hours and raw materials, distinguishing them from inputs that remain constant.