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2 answers:
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Answer:
a. Anywhere inside or on the production possibilities frontier.
Explanation:
In an economy, the allocative efficiency may be defined as the economic state where the production of various goods or services is aligned with the preferences with the consumers.
The allocative efficiency always materializes at the intersection of the supply curves and the demand curves.
On the the price for a supply
with the demand for the product
at that price, and thus all the products are sold.
It occurs anywhere on the production possibilities frontier or on the inside of the frontier.
Therefore, the correct option is (a).
Answer:
Hence, the the maximum amount the company could invest in the project is $1081432.86 and yes, the project should be accepted as the value is greater than initial investment.
Therefore, the correct option is b. $1,081,434
Explanation:
Here, maximum amount means the sum of present value of all cash inflows
So,
Present value = all Year cash inflows × Discounted factor of each year
where,
Year 1, year 2, year 3, year 4, and year 5 have same cash flows i.e. $300,000
But the discounted factor is different in each year
The calculation of discounted factor = 1 ÷ (1+0.12) ^ 1
where,
0.12 = rate
^1 = for year 1, ^2 = for year 2 and so on.
The discounted rate for year 1, , year 2, year 3, year 4, and year 5 is 0.8929
, 0.7972
, 0.7118
, 0.6355
, 0.5674 respectively.
Now, multiply the cash flow amount with discounted rate for each year to get presented value of all years.
Year 1 = $300,000 × 0.8929 = $267,857.14
Year 2 = $300,000 × 0.7972 = $239,158.16
Year 3 = $300,000 × 0.7118 = $213,534.07
Year 4 = $300,000 × 0.6355 = $190,655.42
Year 5 = $300,000 × 0.5674 = $170,228.06
Then, sum all the presented values of all year to get maximum amount
= $267,857.14 + $239,158.16 + $213,534.07 + $190,655.42 + $170,228.06
= $1,081,432.86
So, we attached the sheet for better understanding.
Hence, the the maximum amount the company could invest in the project is $1081432.86 and yes, the project should be accepted as the value is greater than initial investment.
Therefore, the correct option is b. $1,081,434
