Scenario 15.6: Consider the Following Decision That Eileen Has to Make

question 109

Multiple Choice

Scenario 15.6:
Consider the following decision that Eileen has to make:
Eileen is considering buying a $4000 computer for her daughter. Eileen hopes that with the computer her daughter's schoolwork will improve so much that in two years time she will be offered a full-ride scholarship to college. The scholarship is paid for four years and is valued at $25,000 per year. Even with the computer the probability that the scholarship will be awarded is 10%.
-Refer to Scenario 15.6. What formula shows the expected NPV of this purchase?

• A) -$4000 + $2500(1/1.1² + 1/1.1³ + 1/1.1⁵ + 1/1.1⁵)
• B) -$4000 + $25,000(1/1.1² + 1/1.1³ + 1/1.1⁵ + 1/1.1⁵)
• C) -$4000 + (4 times $2500)
• D) -$4000 + (4 times $25,000)
• E) 4 ^∗ $2500

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Definitions:

Data Mining

Data mining involves extracting valuable information from a large set of data, by identifying patterns, anomalies, and correlations.

Information Technology

The study or use of systems for storing, retrieving, and sending information, especially through computing and telecommunications.

Spam

Unsolicited digital messages sent in bulk, often via email, containing advertisements, scams, or viruses.

Cognitive Surplus

The combination of free time and the digital tools that allow people to use that time to engage in collaborative, creative activities online.