A Project Has a Net Initial Investment of $500,000 and the Cash

question 7

Multiple Choice

A project has a net initial investment of $500,000 and the cash flows cover five years. The project involves replacing an old machine with a new machine at the same time. Which of the following is true based on the above assumptions, in NPV analysis?

• A) The book value of the old machine is relevant.
• B) Recurring operating cash flows cannot be positive and negative.
• C) Incremental working capital investment is irrelevant.
• D) Any cash received from the disposal of the old machine would be a relevant cash flow for end of year 1.
• E) Errors in forecasting the terminal disposal price of the new machine are seldom critical on long-duration projects.

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Definitions:

Defined Benefit Plans

A type of pension scheme where the benefits that an employee will receive upon retirement are predetermined based on factors like salary history and duration of employment.

Societal Objectives

Goals or aims that benefit society as a whole, often pursued by organizations, governments, or groups seeking to improve quality of life, social welfare, or community development.

Economic

Pertaining to the production, distribution, and consumption of goods and services and the management of money and resources.

Compensation Package

The total combination of salary, benefits, bonuses, and any other forms of remuneration offered to an employee by an employer.