Gce Model Questions Vol1 2022 Government Question 24

Practice objective / multiple choice question 24 from the 2022 Gce Model Questions Vol1 Government examination.

Gce Model Questions Vol1 2022 Government Objective / Multiple Choice Hard Difficulty
Question 24 GCE_MODEL_QUESTIONS_VOL1 • 2022 • GOVERNMENT • objective

A public agency is evaluating two 5‑year projects. Project X requires an initial outlay of £4 million and generates an annual benefit of £1.5 million together with an annual operating cost of £0.3 million. Project Y requires an initial outlay of £5 million, an annual benefit of £2 million and an annual operating cost of £0.5 million. Using a discount rate of 8 % per annum, (a) calculate the net present value (NPV) of each project. (b) If the agency's budget allows a maximum of £8 million for initial costs, which combination of projects (none, X only, Y only, or both) yields the highest total NPV while respecting the budget?

Answer Options

A. NPV_X ≈ £0.79 million; NPV_Y ≈ £0.99 million. The budget permits both projects; choosing both yields the highest total NPV (≈ £1.78 million).
B. NPV_X ≈ £0.79 million; NPV_Y ≈ £0.99 million. The budget permits only one project; choosing Project X alone yields the highest total NPV (≈ £0.79 million).
C. NPV_X ≈ £0.70 million; NPV_Y ≈ £1.10 million. The budget permits only one project; choosing Project Y alone yields the highest total NPV (≈ £1.10 million).
Correct Answer D. NPV_X ≈ £0.79 million; NPV_Y ≈ £0.99 million. The budget permits only one project; choosing Project Y alone yields the highest total NPV (≈ £0.99 million).
Correct Answer
D
Correct Option:
NPV_X ≈ £0.79 million; NPV_Y ≈ £0.99 million. The budget permits only one project; choosing Project Y alone yields the highest total NPV (≈ £0.99 million).

About This Question

This is Gce Model Questions Vol1 2022 Government Question 24. It is one of the objective questions from the 2022 Gce Model Questions Vol1 Government examination.

Difficulty level: Hard .

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