You Are Considering a Project That Has Been Assigned a Discount

question 22

Multiple Choice

You are considering a project that has been assigned a discount rate of 14.3 percent. If you start the project today, you will incur an initial cost of $11,400 and will receive cash inflows of $6,800 a year for two years. If you wait one year to start the project, the initial cost will rise to $12,100 and the cash flows will increase to $7,200 a year for two years. What is the value of the option to wait?

• A) −$7.63
• B) −$9.46
• C) −$28.51
• D) −$30.49
• E) −$33.02

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Definitions:

Formal Business Plan

A detailed document prepared by a company outlining its objectives, strategies, financial forecasts, and market analysis to guide its operations and attract potential investors.

Visuals

The use of graphical elements in marketing and communication to convey messages and engage audiences.

Illustrations

Artistic representations or diagrams intended to explain or decorate.

Sans Serif

A category of typefaces devoid of extending features called "serifs" at the ends of strokes, known for their clean, modern appearance.