A Corporation Is Assessing the Risk of Two Capital Budgeting

question 25

Multiple Choice

A corporation is assessing the risk of two capital budgeting proposals. The financial analysts have developed pessimistic, most likely, and optimistic estimates of the annual cash inflows which are given in the following table. The firm's cost of capital is 10 percent.
$$\begin{array} { c c c } & { \text { Project A } } \\\hline \text { Initial Investment } & \text { Annual cash inflow } & \text { Outcome } \\\hline { \$ 20,000 } & \$ 5,000 & \text { Pessimistic } \\& 10,000 & \text { Most likely } \\& 15,000 & \text { Optimistic } \\\\& \text { Project B } & \\\hline \text { Initial Investment } & \text { Annual cash inflow } & \text { Outcome } \\\hline { \text { \$100,000 } } & \$ 20,000 & \text { Pessimistic } \\& 40,000 & \text { Most likely } \\& 100,000 & \text { Optimistic }\end{array}$$
-If the projects have five-year lives, the range of the net present value for Project B is approximately. _____________

• A) $303,260
• B) $255,410
• C) $80,560
• D) $201,000

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Employment Opportunities

Available positions or jobs within the economy that employ individuals to work.

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Nations with the lowest indicators of socioeconomic development, often characterized by low GDP per capita, poor infrastructure, and high levels of poverty.

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The total population within a certain area or nation.

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