Your Boss Asked You to Evaluate a Project with an Infinite

question 52

Multiple Choice

Your boss asked you to evaluate a project with an infinite life.Sales and costs project to $1,000 and $500 per year, respectively.(Assume sales and costs occur at the end of the year [i.e., profit of $500 at the end of year one]) .There is no depreciation and the tax rate is 30 percent.The real required rate of return is 10 percent.The inflation rate is 4 percent and is expected to be 4 percent forever.Sales and costs will increase at the rate of inflation.If the project costs $3,000, what is the NPV?

• A)$500.00
• B)$1,629.62
• C)$365.38
• D)$472.22

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