A Cost-Cutting Project Has an Initial Cost of $1,200 and Annual

question 13

Multiple Choice

A cost-cutting project has an initial cost of $1,200 and annual costs of $380 for each year of the project's 4-year life.The equivalent annual cost for this project is best described as the:

• A)4-year annuity payment that has the same net present value as the project's costs given a stated discount rate.
• B)4-year total of all costs divided by four.
• C)annual sales needed to offset these additional costs.
• D)lump sum payment at Time 0 that is equal to these additional costs at a given discount rate.
• E)4-year average aftertax cash flow resulting from the annual costs.

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Definitions:

Deferred Gratification

The ability to resist the temptation for an immediate reward and wait for a later reward.

Paycheque

A paycheque is a check issued by an employer to pay an employee for services rendered, typically on a regular basis like weekly or monthly.

Savings Account

A deposit account held at a bank or other financial institution that provides modest interest rates.

Meritocratic System

A system in which advancement in society is based on an individual's capabilities and merits rather than on family, wealth, or social connections.