Ernestine Is Analyzing a 4-Year Project with an Initial Cost

question 1

Multiple Choice

Ernestine is analyzing a 4-year project with an initial cost of $87,000,a required rate of return of 14 percent,and a chance of success of 4 percent.If the project succeeds,the annual cash flow will be $1,789,000.If the project fails,the annual cash flow will be -$131,000.The project can be shut down after the first 2 years but all monies invested will be lost.None of the initial cost can be recouped after 4 years.What is the net present value of this project at Time 0?

• A)$150,050.32
• B)-$49,666.71
• C)-$238,212.04
• D)-$85,578.77
• E)$59,412.95

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Definitions:

Minimum Wage

The lowest legal hourly pay rate that employers can pay to workers.

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A phase of brief economic downturn marked by a decrease in business and manufacturing activities, typically recognized when there's a drop in Gross Domestic Product (GDP) for two consecutive quarters.

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A government-imposed limit on how high a price can be charged on a product, intended to protect consumers from high prices, but can lead to shortages.

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