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:

BATNA

Best Alternative To a Negotiated Agreement; the most advantageous alternative course of action a party can take if negotiations fail.

Clarity

The quality of being easily understood, completely transparent, and free from ambiguity.

Assessing Situation

The process of evaluating the details and implications of a scenario or set of circumstances to inform decisions or actions.

Scope

The extent and boundaries of an area or subject matter that something deals with or to which it is relevant.