A New Computer System Is Expected to Cost $40 Million

question 6

Multiple Choice

A new computer system is expected to cost $40 million and generate annual savings of $12 million over the next five years
-Should the bank invest in this project if the discount rate is 12 percent?

• A)Yes, because the net present value of the project is $3,257,314.
• B)No, because the net present value of the project is -$3,257,314.
• C)Yes, because the net present value of the project is $20 million.
• D)No, because the net present value of the project is -$20 million.
• E)Yes, because the net present value of the project is $4,980,000.

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Definitions:

Treasury Stock

Shares that were first put into circulation by a company and then taken back, diminishing the quantity of shares actively traded on the market.

Small Stock Dividend

A dividend paid in the form of additional shares of the issuing corporation, typically representing less than a 25% increase of the outstanding shares.

Retained Earnings

The portion of net income that is retained by the corporation rather than distributed to its owners as dividends.

Additional Paid-In Capital

Additional paid-in capital is the amount of money that shareholders have paid for shares above the stated par value during issuance, representing excess funds contributed by shareholders.