JCB (Which makes agricultural and construction equipment) has the opportunity to purchase a new factory today that will provide them with a Rs50 million return four years from now If prevailing interest rates are 6 percent, what is the maximum that the project can cost for JCB to be willing to undertake the project ?
Correct answer: D. Rs 39,604,682
- A. Rs 43,456,838
- B. Rs 53,406,002
- C. Rs 34,538,902
- D. Rs 39,604,682
Explanation
The maximum acceptable cost is the present value of the future return: Rs50 million divided by 1.06⁴, which is approximately Rs39.605 million. This makes option d the investment’s break-even price.
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