A Project Has a 50/50 Chance of Generating Either a Positive

question 4

Multiple Choice

A project has a 50/50 chance of generating either a positive cash flow of $1 per year forever or a zero cash flow.The discount rate is 5 percent.If the initial cost is $10,what is the NPV with the option to stop after the first year?

• A)-$10
• B)$0
• C)$10
• D)$20

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Definitions:

Economic Profits

The surplus achieved when a firm's revenue exceeds all its costs, incorporating both opportunity costs and explicit costs, measured over time.

Optimal Productive Efficiency

The state in which an economy or production operation can produce the maximum output with the given resources and technology, without wasting resources.

Standardized Product

Goods or services that are uniform in quality and performance, often mass-produced, allowing them to be interchangeable.

Significant Barriers

Major obstacles or impediments that prevent entities from entering a market or industry.