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

question 71

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%, the net present value of this investment is

• A) greater than $80,000.
• 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:

Channel Stuffing

This is a deceptive business practice used by a company to inflate its sales figures by forcibly pushing more products into the distribution channel than it can sell to the end customers.

Quarterly Sales

A financial reporting metric that indicates the total sales revenue generated by a company in a quarter.

Artificial Sales

Sales transactions that may not represent genuine demand in the market, often orchestrated to manipulate market conditions or financial statements.

Net Cash

The amount of cash that remains with a company after all its current liabilities are accounted for, indicating the company's liquidity position.