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question 5

Multiple Choice

[The following information applies to the questions displayed below.]
Newman Labs is considering buying equipment,which would enable the company to obtain a five-year research contract.The specialized equipment costs $650,000 and will have no salvage value when the five-year contract period is over.The estimated annual operating results of the project are as follows:
All revenue from the contract and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes.
-Compute the net present value of this investment,using a discount rate of 12%.(An annuity table shows that the present value of $1 received annually for five years,discounted at 12%,is 3.605. )

• A)$468,650
• B)$179,150
• C)$289,500
• D)$829,150

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Definitions:

Diminishing Returns

The principle that if one factor of production is increased while others remain constant, the overall returns will eventually decrease after reaching an optimal level.

Opportunity Cost

The act of foregoing potential opportunities for gain from several alternatives when deciding on one.

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Casual garments made from fabric, typically short-sleeved and collarless, worn as informal wear or under clothing.

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A cereal grain which is a staple food for a large part of the world's human population, especially in Asia.