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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