(Ignore Income Taxes in This Problem

question 42

Multiple Choice

(Ignore income taxes in this problem.) Parks Corporation is considering an investment proposal in which a working capital investment of $10,000 would be required.The investment would provide cash inflows of $2,000 per year for six years.The working capital would be released for use elsewhere when the project is completed.If the company's discount rate is 10%,the investment's net present value is closest to:

• A) $1,290
• B) $(1,290)
• C) $2,000
• D) $4,350

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Definitions:

Contribution Margin Ratio

A financial metric that represents the percentage of sale price that remains after variable costs are subtracted.

Sales Dollars

The total amount of money generated from the sale of goods or services before any expenses are subtracted.

Margin of Safety

The difference between actual or expected sales and the sales volume at which a company breaks even.

Fixed Costs

Rephrased: Expenses that remain constant regardless of the amount of goods or services produced by a business.