A Project Requires an Additional Commitment of $100,000 in Net

question 81

Multiple Choice

A project requires an additional commitment of $100,000 in net working capital in each of years 1 to 4.These extra investments can be recovered in year 5 when the project comes to an end.What is the effect on NPV?

• A) NPV is reduced by $100,000.
• B) NPV is reduced by the present value of $100,000 discounted at the firm's cost of capital for 4 years.
• C) NPV is reduced by the present value of $100,000 discounted at the firm's cost of capital for each of years 1 to 4 minus the discounted value of the $400,000 that is recovered in year 5.
• D) No opportunity cost is involved.

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Definitions:

Hydrogenating

The process of adding hydrogen to a molecule, usually in the presence of a catalyst, to reduce double or triple bonds to single bonds.

Monocyclic Saturated Compound

An organic chemical compound featuring a single cyclic structure without double or triple bonds, indicating all carbons are saturated with hydrogen.

Molecular Formulas

A notation that shows the type and number of atoms in a molecule but not the bonds or arrangement, such as C2H5OH for ethanol.

Elements of Unsaturation

Refers to the presence of double or triple bonds and/or rings in a compound, which reduce the total number of hydrogen atoms the compound can contain.