Which of the Following Is a Correct Equation to Solve

question 56

Multiple Choice

Which of the following is a correct equation to solve for the NPV of the project that has an initial outlay of $30,000, followed by incremental cash inflows in the next 3 years of $15,000, $20,000, and $30,000? Assume a discount rate of 10%.

• A) NPV = - $30,000 + $15,000(1.10)1 + $20,000(1.10)2 + $30,000(1.10)3
• B) NPV = - $30,000 + $15,000/(1.10)1 + $20,000/(1.10)2 + $30,000/(1.10)3
• C) NPV = - $30,000 + $15,000/(1.01).10 + $20,000/(1.02).10 + $30,000/(1.03).10
• D) NPV = - $30,000 + $15,000/(1.1).10 + $20,000(1.2).10 + $30,000(1.3).10

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Definitions:

Markup Percentage

The percent added to the cost price of goods to cover overhead and profit.

Required Return

The minimum expected return an investor demands for an investment, considering the risk associated with it.

Absorption Costing

An accounting method that includes all of the costs associated with production, including variable costs and fixed overhead.

Selling Price

The amount of money charged for a product or service, or the sum the market will bear.