Gce Model Questions Vol1 2020 Economics Question 14

Practice objective / multiple choice question 14 from the 2020 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2020 Economics Objective / Multiple Choice Hard Difficulty
Question 14 GCE_MODEL_QUESTIONS_VOL1 • 2020 • ECONOMICS • objective

A government infrastructure project requires an initial outlay of £200 million today. It is expected to generate real benefits of £80 million at the end of year 1, £90 million at the end of year 2 and £100 million at the end of year 3. The nominal discount rate is 8 % per annum and the expected inflation rate is 3 % per annum. Using the real discount rate, calculate the net present value (NPV) of the project and state whether it should be undertaken.

Answer Options

A. NPV ≈ £52.1 million (positive, so the project should be undertaken)
B. NPV ≈ -£5.3 million (negative, so the project should not be undertaken)
Correct Answer C. NPV ≈ £44.9 million (positive, so the project should be undertaken)
D. NPV ≈ £38.2 million (positive, so the project should be undertaken)
Correct Answer
C
Correct Option:
NPV ≈ £44.9 million (positive, so the project should be undertaken)

About This Question

This is Gce Model Questions Vol1 2020 Economics Question 14. It is one of the objective questions from the 2020 Gce Model Questions Vol1 Economics examination.

Difficulty level: Hard .

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