A Company Has Policy to Invest in New Opportunities If

question 17

True/False

A company has policy to invest in new opportunities if the investment has a positive NPV. See data below:
$$\begin{array} { | r | r | } \hline \text { Initial investment } & \$ 105,000 \\\hline \text { Yearly cash flows } & \$ 30,000 \\\hline \text { Number of years } & 4 \\\hline \text { Residual value } & \$ 10,000 \\\hline & \\\hline\end{array}$$
$\begin{array}{|l|l|l|l|l|l|l|}\hline \text { Present}\\\text {Value of an}\\\text {Annuity of}\\ \$ 1 \\ \hline &5 \% & 6 \% & 7 \% & 8 \% & 9 \% & 10 \%\\ \hline 1& 0.95 & 0.943 & 0.93 & 0.926 & 0.917 & 0.909 \\\hline 2 & 1.859 & 1.833 & 1.809 & 1.783 & 1.759 & 1.736 \\\hline 3 & 2.729 & 2.673 & 2.624 & 2.577 & 2.531 & 2.487 \\\hline 4 & 3.546 & 3.465 & 3.387 & 3.312 & 3.240 & 3.170 \\\hline 5 & 4.329 & 4.212 & 4.10 d & 3.993 & 3.890 & 3.791 \\\hline\end{array}$


$\begin{array}{|r|r|r|r|r|r|r|} \hline\text {Present Value of }\\\$ 1\\ \hline & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% & 10 \% \\\hline 1 & 0.952 & 0.943 & 0.935 & 0.92 & 0.917 & 0.909 \\\hline 2 & 0.907 & 0.890 & 0.873 & 0.857 & 0.84 & 0.826 \\\hline 3 & 0.864 & 0.840 & 0.816 & 0.794 & 0.777 & 0.751 \\\hline 4 & 0.823 & 0.792 & 0.763 & 0.733 & 0.70 & 0.683 \\\hline 5 & 0.784 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \\\hline\end{array}$
If the company has a hurdle rate of 9%, this investment will yield a positive NPV and should be accepted.

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Definitions:

Bad Argument

Refers to a line of reasoning that is flawed either through logical fallacies, lack of evidence, or faulty premises.

Conclusion

The final part of something, such as an argument or text, summing up the points or deriving a decision based on the preceding information.

Premises

Statements or assumptions that serve as the starting points for a logical argument, leading to a conclusion based on deductive reasoning.

Blind Taste Test

An evaluation method where the participants sample food or drink without knowing the brand or identity to prevent bias in their feedback.