Project a Has a Five-Year Life and an Initial Cost

question 49

Multiple Choice

Project A has a five-year life and an initial cost of $2,000 and annual cash flows of $700 per year. Project B also has a five-year life and an initial cost of $3,000 with annual cash flows of $950 per year. Given this information, calculate the NPV that the IRR cross-over rate provides.

• A) ($594.16)
• B) ($216.48)
• C) $328.87
• D) $800.00
• E) $1,041.50

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Definitions:

Probability

A measure of the likelihood of a certain event or outcome, typically expressed as a number between 0 and 1.

Disproportionately Large Weight

An undue or excessively large significance or importance given to a component or factor in a situation or calculation.

Catastrophic Medical Emergency

A sudden, unexpected medical situation requiring immediate and expensive care, potentially causing significant financial hardship.

Underestimate

To assess something or someone as less in quantity, value, or importance than is actually the case.