A Project Has Expected Cash Inflows, Starting with Year 1

question 47

Multiple Choice

A project has expected cash inflows, starting with year 1, of $2,200, $2,900, $3,500 and finally in year four, $4,000. The profitability index is 1.14 and the discount rate is 12 percent. What is the initial cost of the project?

• A) $7,899.16
• B) $8,098.24
• C) $8,166.19
• D) $9,211.06
• E) $9,250.00

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Definitions:

Significance Level

A threshold below which a p-value is considered statistically significant, indicating that observed results are unlikely to be due to chance.

Critical Value

The point or points on the scale of a test statistic beyond which we reject the null hypothesis; these values define the threshold of significance.

Test Statistic

A value, derived from sample data, used in a hypothesis test to determine whether to reject the null hypothesis.

P-value

The probability of observing data at least as extreme as the observed data, given that the null hypothesis is true.