Use the Figure for the Question(s) Below

question 106

Multiple Choice

Use the figure for the question(s) below.
-A consumer good company is developing a new brand of organic toothpaste. Above is the sensitivity analysis for this product. If the best-case assumptions for Net Working Capital are met, what will the net present value (NPV) of this project be?

• A) $0.65 million
• B) $1.7 million
• C) $2 million
• D) $3 million

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Definitions:

Substitution Effect

The substitution effect occurs when consumers replace pricier items with less expensive alternatives as prices rise.

Economic Rent

The payment to an owner or factor of production in excess of the costs needed to bring that factor into production, essentially a surplus amount.

High Wages

Payment levels to employees that are above the industry average, often due to high skill levels, efficiency, or labor market conditions.

Real Wages

Are wages that have been adjusted for inflation, representing the purchasing power of nominal wages.