A Project Costs $12,800 and Is Expected to Provide a Real

question 97

Multiple Choice

A project costs $12,800 and is expected to provide a real cash inflow of $10,000 at the end of each of years 1 through 5.Calculate the net present value of this project if inflation is expected to be 4% in each year and the firm employs a nominal discount rate of 10.76%.

• A) $33,522.30
• B) $28,756.79
• C) $33,294.07
• D) $26,311.15

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Definitions:

Expected Future Value

The anticipated value of an investment at a specific future date, taking into account potential growth or depreciation based on various factors such as market conditions and interest rates.

Compounded Interest

Interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Amortized Loan

A loan with scheduled periodic payments that consist of both principal and interest, where initially more interest is paid than principal.

Constant Payments

A fixed amount of money paid periodically in a loan agreement or financial investment, such as in an annuity or mortgage.