At Stage 2 of the Decision Tree It Shows That

question 4

Multiple Choice

At stage 2 of the decision tree it 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 $44,000. The cost of capital is 15%. What is the NPV of the project at stage 1?

• A) -$13,275
• B) -$20,232
• C) $2,087
• D) $7,536

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