Roske Company Is Considering a Project with an Initial Investment

question 11

Multiple Choice

Roske Company is considering a project with an initial investment of $40,000 and annual cash inflows of $8,000 per year for seven years.The company's cost of capital is 12 percent.Factors for a 12 percent interest rate for seven years are shown below:
Future Value of $1 2.211
Present Value of $1 0.452
Future Value of an Annuity 10.089
Present Value of an Annuity 4.564
Using the net present value (NPV) to evaluate this proposal,the company should:

• A)invest in the proposal since the NPV is 36,512
• B)reject the proposal since the NPV is ($3,488).
• C)reject the proposal since the NPV is ($36,512).
• D)invest in the proposal since the NPV is $3,488.
• E)None of the answer choices is correct.

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Definitions:

Unemployment Of Resources

Unemployment Of Resources refers to a situation where factors of production, such as labor and capital, are not being used in the production process.

Production Possibilities Curve

A graphical representation of the maximum quantities of two goods or services that an economy can produce when utilizing its resources fully and efficiently.

Circular Flow Diagram

A visual model of the economy that shows how dollars flow through markets among households and firms, illustrating the interdependencies of economic activities.

Markets For Goods

Platforms or locations where goods are bought and sold, encompassing both physical locations and virtual marketplaces.