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:

Patterns Of Explanation

Structured frameworks or methods used to elucidate how or why certain phenomena occur, aimed at enhancing understanding through logical reasoning.

Plausible

Appearing reasonable or probable.

Knowledge

Knowledge or expertise acquired through education or experience.

Fundamental

Serving as an essential component or basis; foundational.