You Are Considering a Project Which Has Been Assigned a Discount

question 35

Multiple Choice

You are considering a project which has been assigned a discount rate of 8 percent.If you start the project today,you will incur an initial cost of $480 and will receive cash inflows of $350 a year for three years.If you wait one year to start the project,the initial cost will rise to $520 and the cash flows will increase to $385 a year for three years.What is the value of the option to wait?

• A)$15.23
• B)$17.08
• C)$18.67
• D)$20.20
• E)$50.20

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Definitions:

Equally

Pertaining to being the same in quantity, size, degree, or value, or treating all parties in a situation or context without partiality or discrimination.

Utilitarians

Advocates of utilitarianism, a theory in ethics which states that the best action is the one that maximizes utility, usually defined as that which produces the greatest well-being of the greatest number of people.

God

God is a supreme being worshipped in various religions and spiritual traditions, often perceived as the creator and overseer of the universe and source of moral authority.

Rule Utilitarian

A person who believes that the best moral action is the one that follows a set of rules, assuming those rules lead to the greatest good for the greatest number when generally applied.