Rearden Metal Needs to Order a New Blast Furnace That

question 58

Multiple Choice

Rearden Metal needs to order a new blast furnace that will be delivered in one year.The $1,000,000 price for the blast furnace is due in one year when the new furnace is installed.The blast furnace manufacturer offers Rearden Metal a discount of $50,000 if they pay for the furnace now.If the interest rate is 7%,then the NPV of paying for the furnace now is closest to:

• A)($15,421).
• B)$15,421.
• C)($46,729).
• D)$46,729.

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Definitions:

Shareholder Wealth

The total value of a company to its shareholders, typically measured by the market capitalization or the equity value of the company.

Cost of Capital

The necessary yield a business must secure on its ventures to sustain its valuation in the marketplace and raise capital.

Cost of Equity

The return that investors require for their investment in a company, essentially the amount a firm must pay to retain its equity investors.

MIRR

Modified Internal Rate of Return; a financial metric that adjusts the traditional IRR to account for differences in reinvestment rates and financing costs.