Use the Information for the Question(s)below

question 1

Multiple Choice

Use the information for the question(s) below.
Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy,with each outcome being equally likely.The initial investment required for the project is $80,000,and the project's cost of capital is 15%.The risk-free interest rate is 5%.
-Suppose that to raise the funds for the initial investment the firm borrows $80,000 at the risk-free rate,then the value of the firm's levered equity from the project is closest to:

• A)$0.
• B)$10,000.
• C)$6000.
• D)$8600.

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Definitions:

Internal Dispositions

Enduring personality traits, attitudes, or behaviors that an individual consistently exhibits across different situations.

Situational Determinants

These refer to external factors or environmental conditions that influence an individual's behavior, emotions, and decisions in different contexts.

Conformity

A change in behavior due to explicit or implicit social pressure.

Fundamental Attribution Error

A cognitive bias that causes people to overestimate the influence of personality or dispositional factors on an individual's behavior while underestimating the influence of situational factors.