A Planned Factory Expansion Project Has an Estimated Initial Cost

question 138

Multiple Choice

A planned factory expansion project has an estimated initial cost of $800,000.Using a discount rate of 20%,the present value of future cost savings from the expansion is $843,000.To yield exactly a 20% internal rate of return,the actual investment cost cannot exceed the $800,000 estimate by more than which of the following? (Ignore income taxes in this problem.)

• A) $1,075.
• B) $20,000.
• C) $43,000.
• D) $160,000.

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Definitions:

Trend Analysis

The practice of collecting information and attempting to spot a pattern, often used in financial and market analysis.

Horizontal Analysis

A financial analysis technique that compares historical financial data across a series of periods to identify trends and changes.

Financial Statement Item

An individual line item or component that appears in a financial statement such as the balance sheet or income statement.

Common-size Statements

Financial statements that display line items as a percentage of a common base figure, facilitating comparisons across time periods or companies.