A Project Will Produce Cash Inflows of $1,750 a Year

question 51

Multiple Choice

A project will produce cash inflows of $1,750 a year for four years. The project initially costs $10,600 to get started. In year five,the project will be closed and as a result should produce a cash inflow of $8,500. What is the net present value of this project if the required rate of return is 13.75%?

• A) -$5,474.76
• B) -$1,011.40
• C) -$935.56
• D) $1,011.40
• E) $5,474.76

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Definitions:

Security Interest

A legal claim or lien on collateral that has been pledged, usually to secure a debt or obligation, giving the lender rights to the property if the borrower defaults.

Secured Creditor

A creditor who has the benefit of a security interest in an asset of the debtor, giving them a right to take possession of the secured property if the debtor fails to repay the debt.

Lender

An entity or individual that provides funds to another under the agreement that the funds will be repaid, typically with interest.

Dischargeable Debts

Debts that can be eliminated through bankruptcy proceedings, releasing the debtor from personal liability for certain debts.