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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