At Stage 2 of the Decision Tree It Shows That

question 66

Multiple Choice

At stage 2 of the decision tree it shows that if a project is successful,the payoff will be $53,000 with a 2/3 chance of occurrence. There is also the 1/3 chance of a $-24,000 payoff. The cost of getting to stage 2 (1 year out) is $44,000. The cost of capital is 15%. What is the NPV of the project at stage 1?

• A) $-13,275
• B) $-20,232
• C) $2,087
• D) $7,536
• E) Cannot be calculated without the exact timing of future cash flows

---

Definitions:

T-Bills

Short-term government securities issued at a discount from their face value, maturing in one year or less.

Exchange Rates

The rate at which one currency can be exchanged for another, influencing international trade and economic relationships between countries.

Direct Exchange

Trading goods or services directly between parties without using money as an intermediary.

Eurobond

A bond issued in a currency other than the currency of the country or market in which it is issued.