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

question 10

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.Now assume that 1 year from now OI will know if the F-100 has become the industry standard.Also assume that after receiving the cash flows at t = 1,OI has the option to abandon the project,in which case it will receive an additional $100,000 at t = 1 but no cash flows after t = 1.Assuming that the cost of capital remains at 12%,what is the estimated value of the abandonment option?

• A)$2,075
• B)$4,067
• C)$8,945
• D)$10,745

Identify the relationship between the demand for resources and the demand for the final product.

Analyze factors influencing the demand for labor and land in various scenarios.

Grasp the impact of changes in productivity on the Marginal Physical Product (MPP) and MRP.

Recognize the implications of price changes on resource demand and employment levels.

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Definitions:

Gross Earnings

The total amount of income earned by an individual or company before any deductions such as taxes and other withholdings.

Withholding Allowance

A determination used to calculate the amount of federal income tax to withhold from an employee's paycheck.

Gross Earnings

The total amount of money earned by an individual or a company before any deductions or taxes are applied.

Taxable Income

The amount of an individual's or a corporation's income used to determine how much tax is owed to the government.