Chrustuba Inc

question 10

Multiple Choice

Chrustuba Inc.is evaluating a new project that would cost $9 million at t = 0.There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $6 million during Years 1,2,and 3.However,there is a 50% chance that it would be less successful and would generate only $1 million for each of the 3 years.If the project is highly successful,it would open the door for another investment of $10 million at the end of Year 2,and this new investment could be sold for $20 million at the end of Year 3.Assuming a WACC of 10.0%,what is the project's expected NPV (in thousands) after taking into account this growth option? ​

• A)$2,776
• B)$3,085
• C)$3,393
• D)$3,733
• E)​

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Definitions:

Regulated

subject to rules, standards, and guidelines set by governing bodies to control activities, processes, or industries for safety, fairness, or efficiency.

Economic Efficiency

Economic efficiency is a state where resources are allocated in such a way that maximizes the production of goods and services at the lowest cost, thereby optimizing societal welfare.

Demand Conditions

The various factors that influence the quantity of a product or service that consumers are willing and able to purchase.

Cost Conditions

Relate to the factors that influence the costs of production for goods and services, including material, labor, and overhead costs.