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

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Definitions:

Cost Model

An accounting method that values an asset based on its historical cost less any accumulated depreciation and impairment losses.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset since it was put into use.

Recoverable Amount Test

A financial assessment to determine the higher of an asset's fair value less costs of disposal and its value in use.

Fair Value

What is expected as profit from selling an asset or what is required as payment to transfer a liability in a smooth market transaction on the established measurement date.