A Project with a 3-Year Life Has the Following Probability

question 34

Multiple Choice

A project with a 3-year life has the following probability distributions for possible end of year cash flows in each of the next three years: Using an interest rate of 8 percent, find the expected present value of these uncertain cash flows.(Hint: Find the expected cash flow in each year, then evaluate those cash flows.)

• A)$1,204.95
• B)$835.42
• C)$1,519.21
• D)$1,580.00
• E)$1,347.61

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Definitions:

Equal Annual Cash Flows

A series of identical cash amounts that occur at equal intervals over a period of time, commonly used in financial analysis.

Annuity

A financial product that pays out a fixed stream of payments to an individual, typically used as an income stream for retirees.

Withdraw

To remove something from consideration or usage, or to take money out of a bank account.

Invest Enough Money

The process of allocating adequate financial resources to opportunities, projects, or assets to achieve desired outcomes or returns.