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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Definitions:

Coffee

A drink produced from brewing the roasted seeds of the Coffea plant's berries, known as coffee beans.

Consumer Surplus

The difference between the total amount consumers are willing and able to pay for a good or service and the total amount they actually pay.

Trade

The exchange of goods, services, or both between two or more parties, either within a country or across international borders.

Total Surplus

The sum of consumer surplus and producer surplus in a market, representing the total benefit to society from trade.