Mr Wills Invested in a Business That Will Generate $75,000

question 14

Multiple Choice

Mr. Wills invested in a business that will generate $75,000 annual after-tax cash flow in years 0 and 1 and $90,000 annual after-tax cash flow in years 2 and 3. Compute the NPV of these cash flows at a 10% discount rate.

• A) $259,185
• B) $277,348
• C) $290,310
• D) None of the above

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Definitions:

Physical Capital

The stock of tangible, non-financial assets that are used in the production of goods and services, such as machinery and buildings.

Opportunity Costs

The cost of an alternative that must be forgone in order to pursue a certain action, essentially what is sacrificed to choose one option over another.

Subsidies

Financial support provided by governments to individuals, organizations, or industries to encourage certain activities or reduce costs.

Comparative Advantage

The ability of an individual or country to produce a particular good or service at a lower opportunity cost than its competitors.