What Is the Value of the Project If the True

question 2

Multiple Choice

What is the value of the project if the true probabilities are used and the appropriate one period risk adjusted discount rate is used (assume the $80 annual cost does not exist) ?

• A) $169.65
• B) $201.42
• C) $233.73
• D) $288.64

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Definitions:

Market Rate

The prevailing interest rate available in the marketplace on investments or loans.

Bonds

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental.

Cash Received

The actual receipt of cash from transactions, including sales, investments, financing, and other business activities.

Discount on Bonds Payable

The discrepancy between what a bond is actually worth and the lower price it is sold for.