A Project Will Cost $20,000 and Is Expected to Produce

question 42

Multiple Choice

A project will cost $20,000 and is expected to produce cash flows of $10,000, $8,000, and $5,000 at the end of each of the first three years, respectively. If the cost of capital is 7%, what is the
Project's profitability index? Round your answer to the nearest hundredth.

• A)1.02
• B)0.02
• C)0.98
• D)1.15

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Definitions:

Pluralistic Ignorance

A psychological state where individuals mistakenly believe their thoughts, feelings, or behaviors are different from those of the group, often due to a lack of open communication.

Bystander Effect

A social psychological theory that suggests that individuals are less likely to offer help to a victim when other people are present, often due to a diffusion of responsibility.

Diffusion of Responsibility

The phenomenon where individuals in a group are less likely to take action or feel accountable, assuming that others will do so.

Commons Dilemma

A situation in which individuals' short-term selfish interests conflict with long-term group welfare, often relating to resource management.