A Capital Budgeting Project Has a Net Investment of $450,000

question 27

Multiple Choice

A capital budgeting project has a net investment of $450,000 and is expected to generate net cash flows of $150,000 annually for 5 years. What is the net present value at a 15% required rate of return?

• A)$64,962
• B)$52,823
• C)$41,144
• D)$300,000

---

Definitions:

CCA Recapture

In Canadian taxation, the portion of the Capital Cost Allowance that is added back to income when an asset is disposed of for more than its undepreciated capital cost.

Risk-adjusted Cost of Capital

The rate of return that must be achieved in order to compensate for the risk of an investment, adjusting the cost of capital according to the risk involved.

IRR Estimate

An estimation of the Internal Rate of Return, which is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Asset's Total Assets

The summation of everything of value owned by a person, company, or organization, including both current and non-current assets.