A Company Finds That the Residual Value of $8,000 for the Equipment

question 14

Multiple Choice

A company finds that the residual value of $8,000 for the equipment in a capital budgeting project has been inadvertently omitted from the calculation of the net present value (NPV) for that project. How does this omission affect the NPV of that project?

• A)The project's NPV should be higher, but be less than $8,000 higher, with the residual value included.
• B)The project's NPV should be $8,000 higher with the residual value included.
• C)The project's NPV should be $8,000 lower with the residual value included.
• D)The project's NPV should be lower, but be less than $8,000 lower, with the residual value included.

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Definitions:

Buildings

Structures constructed for residential, commercial, or industrial purposes.

Money

A medium of exchange, a unit of account, and a store of value, used to facilitate the sale, purchase, or trade of goods and services.

Zero-Sum Game

A situation in economic theory where one participant's gains result entirely from another participant's equivalent losses.

Exploitation

The act of using someone or something unfairly for one's own advantage, often without proper compensation.