A Company Is Considering an Iron Ore Extraction Project That

question 41

Multiple Choice

A company is considering an iron ore extraction project that requires an initial investment of $512,000 and will yield annual cash inflows of $156,000 for four years.The company's discount rate is 9%.What is the NPV of the project? Present value of an ordinary annuity of $1:
$$\begin{array} { | c | r | r | r | } \hline & { 8 \% } & { 9 \% } & { 10 \% } \\\hline 1 & 0.926 & 0.917 & 0.909 \\\hline 2 & 1.783 & 1.759 & 1.736 \\\hline 3 & 2.577 & 2.531 & 2.487 \\\hline 4 & 3.312 & 3.24 & 3.17 \\\hline 5 & 3.993 & 3.89 & 3.791 \\\hline 6 & 4.623 & 4.486 & 4.355 \\\hline 7 & 5.206 & 5.033 & 4.868 \\\hline 8 & 5.747 & 5.535 & 5.335 \\\hline 9 & 6.247 & 5.995 & 5.759 \\\hline 10 & 6.71 & 6.418 & 6.145 \\\hline\end{array}$$

• A) $6,560
• B) $(102,400)
• C) $102,400
• D) $(6,560)

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Definitions:

Expected Annual Compound

A projection of the return that an investment is expected to yield on an annual basis, taking into account the effect of compounding.

Bond Market Analyst

A financial professional who evaluates and interprets bond market data to forecast bond price movements and interest rate trends.

Price Sensitivity

The degree to which the price of a product or service affects consumers' purchasing behaviors or the quantity demanded.

Price Volatility

The rate at which the price of a security increases or decreases for a given set of returns.