A Capacity Alternative Has an Initial Cost of $50,000 and Cash

question 42

Multiple Choice

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years.If the cost of capital is 5 percent,the net present value of this investment is:

• A)greater than $80,000 but less than $130,000.
• B)greater than $130,000.
• C)less than $30,000.
• D)impossible to calculate,because no interest rate is given.
• E)impossible to calculate,because variable costs are not known.

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Definitions:

Isobutylbenzene

An organic compound made up of a benzene ring attached to an isobutyl group, used in the manufacture of other chemicals.

Benzene

A carcinogenic aromatic hydrocarbon with a ring of six carbon atoms, used as a starting material in the manufacture of many chemicals.

Organic Product

A molecule or compound produced from organic precursors, often through reactions involving carbon-based molecules.

Friedel-Crafts Acylation

A chemical reaction that introduces an acyl group into an aromatic ring, facilitated by a Lewis acid catalyst.