SAP IncReceived a $1 Million Grant Under Its Small Business Innovation

question 86

Multiple Choice

SAP Inc.received a $1 million grant under its Small Business Innovation program.SAP invested the grant money and developed a system to remove metal contaminants from storm water in shipyards.The firm estimates that each shipyard spends $500,000 a year on storm water clean-up efforts.If SAP is able to sign up and retain four shipyards from the first year onwards,what is the present value (PV) of the project (net of investment) if the cost of capital for SAP is 18% per year? Assume a cost of operations and other costs for SAP equal 50% of revenue.

• A)$4.56 million
• B)$4.98 million
• C)$5.32 million
• D)$5.87 million

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Definitions:

Aggregate Demand

The total demand for all goods and services within a particular market or economy at a given overall price level and in a given time period.

Real GDP

Gross Domestic Product adjusted for inflation, which provides a more accurate representation of an economy's size and how it's growing over time.

Disposable Income

Money left after taxes and compulsory fees have been subtracted, which can be used for spending or saving according to personal preference.

Marginal Propensity

The additional amount that people consume or save when they receive an extra dollar of income.