A Firm Is Evaluating a Proposal Which Has an Initial

question 117

Multiple Choice

A firm is evaluating a proposal which has an initial investment of $50,000 and has cash flows of $15,000 per year for five years. The payback of the project is:

• A) 1.5 years
• B) 2 years
• C) 3.3 years
• D) 4 years
• E) none of the above

---

Definitions:

Consumer Surplus

The disparity between the ideal total expenditure consumers are willing to make on a good or service and the real expenditure.

Producer Surplus

The distinction in financial terms between what producers expect to receive for a product or service and the actual revenue attained.

Producer Surplus

The difference between the amount producers are willing to sell a good for and the actual market price they receive, reflecting the benefit to producers from selling at a higher price.

Tax

A fundamental fiscal obligation or alternative sort of levy placed upon a taxpayer by a government power, promoting government funding and assorted investments in public infrastructure.