A Project Costs $15 Million and Is Expected to Produce

question 23

Multiple Choice

A project costs $15 million and is expected to produce cash flows of $3 million a year for 10 years. The opportunity cost of capital is 14 percent. If the firm has to issue stock to undertake the project and issue costs are $500,000, what is the project's APV?

• A)−$352,000
• B)$148,350
• C)$648,350
• D)$952,000

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Definitions:

Independent Events

Two or more events where the occurrence of one does not affect the probability of the others.

Normal Distribution

A bell-shaped probability distribution that is symmetric about the mean, describing how continuous data is dispersed around the average value.

Standard Deviation

A gauge for determining the level of difference or scattering in a series of amounts.

Mean High Temperature

The average of the highest temperatures observed over a specified period.