A Firm Invests $200 000 in Machinery That Yields Net

question 64

Multiple Choice

A firm invests $200 000 in machinery that yields net after-tax cash flows of $90 000 at the end of each of the next three years. The opportunity cost of capital is 12%. What is the net present value of the project (to the nearest thousand dollars) ?

• A) -$16 000
• B) -$8000
• C) $0
• D) $8000
• E) $16 000

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Definitions:

Production Function

A formula detailing how input factors like raw materials and labor are turned into output or goods.

Inputs

Inputs like workforce, raw materials, and funds that are employed in the manufacturing process to produce products or services.

Output

The total amount of goods or services produced by a business, industry, or country.

Isoquant

A curve representing all combinations of inputs that produce the same level of output, used in the analysis of production decisions.