Net Present Value: Gao Enterprises Plans to Build a New

question 16

Multiple Choice

Net present value: Gao Enterprises plans to build a new plant at a cost of $3,250,000. The plant is expected to generate annual cash flows of $1,225,000 for the next five years. If the firm's required rate of return is 18 percent, what is the NPV of this project?

• A) $2,875,000
• B) $3,830,785
• C) $580,785
• D) $2,1225,875

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Definitions:

Partnership

A legal form of business operation between two or more individuals who share management and profits. The partners are personally liable for the debts and obligations of the business.

Liability

A legal responsibility for one's actions or the obligation to make restitution for harm caused to others.

Operating Agreements

Legal documents outlining the governance and operational guidelines of an LLC, including details about management, profit sharing, and member responsibilities.

LLC

A Limited Liability Company, a hybrid business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.