A Company Is Considering Investing in a Project That Is

question 4

Multiple Choice

A company is considering investing in a project that is expected to return $350,000 four years from now. How much is the company willing to pay for this investment if the company requires a 12% return? (^{PV of $1}, ^{FV of $1}, ^{PVA of $1}, and ^{FVA of $1}) (Use appropriate factor(s) from the tables provided.)

• A) $55,606
• B) $350,000
• C) $222,425
• D) $137,681
• E) $265,764

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Definitions:

Economic Profit

The distinction in a corporation's gross income versus its overall charges, factoring in both apparent and assumed costs.

Zero Economic Profit

A situation where a company's total revenues exactly equal its total costs, implying normal profit but no economic profit above that.

Competitive Price-searcher Market

A market structure where companies have some control over the prices they charge but must also consider the prices set by their competitors.

Economic Profits

Profits calculated by deducting both the explicit and implicit costs from the total revenues, differing from accounting profits by considering opportunity costs.