OklahomaOklahoma Instruments (OI) Is Considering a Project Called F-200 That

question 20

Multiple Choice

OklahomaOklahoma Instruments (OI) is considering a project called F-200 that has an up-front cost of $250,000. The project's subsequent cash flows are critically dependent on whether another of its products, F-100, becomes an industry standard. There is a 50% chance that the F-100 will become the industry standard, in which case the F-200's expected cash flows will be $110,000 at the end of each of the next 5 years. There is a 50% chance that the F-100 will not become the industry standard, in which case the F-200's expected cash flows will be $25,000 at the end of each of the next 5 years. Assume that the cost of capital is 12%.
-Refer to Scenario: Oklahoma.Based on the above information,what is the F-200's expected net present value?

• A)-$6,678
• B)-$3,251
• C)$15,303
• D)$20,004

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Definitions:

Capital Budget Expenditures

Outlays of funds by a company for major investments or acquisitions intended to drive future growth.

Compliance

Adherence to laws, regulations, guidelines, and specifications relevant to its business processes.

Environmental Issues

Concerns related to the preservation of natural resources and the minimization of pollution and waste.

Opportunity Cost of Capital

The return forgone by investing in a project rather than in the financial market or alternate investments.