You Have Been Asked to Analyse a Capital Investment Proposal

question 71

Multiple Choice

You have been asked to analyse a capital investment proposal.The project's cost is $2,775,000.Cash inflows are projected to be $925,000 in Year 1;$1,000,000 in Year 2;$1,000,000 in Year 3;$1,000,000 in Year 4;and $1,225,000 in Year 5.Assume that your firm discounts capital projects at 15.5%.What is the project's NPV?

• A)$101,247
• B)$285,106
• C)$473,904
• D)$582,380

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Definitions:

Horizontal Equity

The principle that individuals with similar income or assets should be taxed at the same rate, reflecting fairness in tax policy.

Tax Policy

Refers to the principles and proposals governments use to design and implement taxes, affecting economic behavior, distribution of income, and fund public expenditures.

Income Quintile

A statistical measure dividing the population into five equal groups according to their income level to analyze economic inequality.

Lump-Sum Tax

A tax that is a fixed amount, not varying with the taxpayer’s income level or expenditure, making it independent of the taxpayer’s behavior.