Oklahoma Instruments (OI) Is Considering a Project Called F-200 That

question 11

Multiple Choice

Oklahoma Instruments (OI) is considering a project called F-200 that has an up-front cost of $250,000. The project's subsequent cash flows are critically dependent on whether another of its products, F-100, becomes an industry standard. There is a 50% chance that the F-100 will become the industry standard, in which case the F-200's expected cash flows will be
$110,000 at the end of each of the next 5 years. There is a 50% chance that the F-100 will not become the industry standard, in which case the F-200's expected cash flows will be $25,000 at the end of each of the next 5 years. Assume that the cost of capital is 12%.
-Based on the above information, what is the F-200's expected net present value?

• A) -$6,678
• B) -$3,251
• C) $15,303
• D) $20,004
• E) $45,965

---

Definitions:

Margin of Error

An expression of the amount of random sampling error in a survey's results, representing how much the survey results are expected to differ from the true population value.

Confidence Interval

An interval of values calculated from sample data that has a specified probability of including the accurate population parameter.

Confidence Level

A statistical measure that quantifies the uncertainty or certainty in a sampling method, often expressed as a percentage.

Mean Cholesterol Level

The average amount of cholesterol present in the blood, calculated by summing all cholesterol levels and dividing by the number of observations.