Burba Inc Is Considering Investing in a Project That Would Require

question 43

Essay

Burba Inc. is considering investing in a project that would require an initial investment of $200,000. The life of the project would be 5 years. The annual net cash inflows from the project would be $60,000. The salvage value of the assets at the end of the project would be $30,000. The company uses a discount rate of 17%.
Required:
Compute the net present value of the project.

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Definitions:

Deposit Expansion Multiplier

The ratio that quantifies the potential increase in total bank deposits that can result from an initial deposit, through the process of banks lending and creating more deposits.

Reserve Ratio

The fraction of deposits that banks are required to keep on hand and not lend out, as mandated by banking regulations.

Open Market Operations

The buying and selling of government securities in the open market by a central bank to control the supply of money.

Money Supply

The overall amount of available money in an economy, which encompasses cash, coins, and the balances in checking and savings accounts, at a certain moment in time.