You Are Considering a Project Which Has Been Assigned a Discount

question 32

Multiple Choice

You are considering a project which has been assigned a discount rate of 14 percent. If you start the project today, you will incur an initial cost of $1,200 and will receive cash inflows of $600 a year for three years. If you wait one year to start the project, the initial cost will rise to $1,250 and the cash flows will increase to $645 a year for three years. What is the value of the option to wait?

• A) $10.16
• B) $14.87
• C) $19.00
• D) $24.08
• E) $27.03

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Definitions:

Life Expectancy

The average number of years an individual or population is expected to live, based on statistical analyses.

Health Care Spending

The total amount of money spent by individuals, insurance companies, and governments on health care services and products.

Social Network

A network of social interactions and personal relationships, or a platform on the internet that facilitates these interactions.

Emotional Benefit

The positive psychological effect or satisfaction gained by a person from a product, service, or experience.