A planned factory expansion project has an estimated initial cost of $500,000.Using a discount rate of 20 percent,the present value of the future cost savings from the expansion is $520,000.To yield exactly the 20 percent time-adjusted rate of return,the actual investment expenditure should not exceed the $500,000 estimate by more than

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The actual investment expenditure should not exceed the present value of the future cost savings from the expansion, which is $520,000. Therefore, the maximum investment expenditure is $520,000.

To yield exactly the 20 percent time-adjusted rate of return, the net present value (NPV) of the project should be zero. We can calculate the NPV as follows:

NPV = Present value of future cost savings - Initial cost
    = $520,000 - $500,000
    = $20,000

Therefore, the actual investment expenditure should not exceed the initial cost estimate by more than $20,000. Hence, the answer is B.

A Planned Factory Expansion Project Has an Estimated Initial Cost