Gce Model Questions Vol1 2022 Economics Question 18

Practice objective / multiple choice question 18 from the 2022 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2022 Economics Objective / Multiple Choice Hard Difficulty
Question 18 GCE_MODEL_QUESTIONS_VOL1 • 2022 • ECONOMICS • objective

A proposed railway line requires an initial capital outlay of £500 million. It will generate annual benefits that start at £80 million in year 1 and grow at 4 % per year for 10 years. Annual operating costs are a constant £20 million each year. Using a discount rate of 5 %, calculate the net present value (NPV) of the project and state whether the project should be undertaken.

Answer Options

A. NPV ≈ £102.3 million (positive); therefore the project should be undertaken
B. NPV ≈ £-12.5 million (negative); therefore the project should not be undertaken
Correct Answer C. NPV ≈ £76.0 million (positive); therefore the project should be undertaken
D. NPV ≈ £45.2 million (positive); therefore the project should be undertaken
Correct Answer
C
Correct Option:
NPV ≈ £76.0 million (positive); therefore the project should be undertaken

About This Question

This is Gce Model Questions Vol1 2022 Economics Question 18. It is one of the objective questions from the 2022 Gce Model Questions Vol1 Economics examination.

Difficulty level: Hard .

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