Stage 2 of a Decision Tree Shows That If a Project

question 8

Multiple Choice

Stage 2 of a decision tree shows that if a project is successful,the payoff will be $53,000 with a 2/3 chance of occurrence.There is also the 1/3 chance of a −$24,000 payoff.The cost of getting to Stage 2 (1 year out) is $24,000.The cost of capital is 15 percent.What is the NPV of the project at Stage 1?

• A)−$349.16
• B)−$231.88
• C)$108.17
• D)$133.33
• E)$147.59

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Definitions:

Aggregate Planning

A management strategy aimed at balancing production, inventory levels, and workforce to meet forecasted demand over a medium-term horizon.

Demand Estimation

The process of determining the expected demand for a product or service, based on historical data, market trends, and statistical models.

Level Scheduling

A production strategy aiming to maintain a consistent production rate or workforce level over time, despite fluctuating demand.

Hire/Layoff Workers

Hiring and laying off workers are human resources management actions involving the appointment of new staff members and the dismissal of existing employees, respectively, usually based on the company’s current demand and financial situation.