Gamma Corporation Is Considering an Investment of $518,000 in a Land

question 60

Multiple Choice

Gamma Corporation is considering an investment of $518,000 in a land development project.The investment will yield cash inflows of $220,000 per year for five years.The company uses a discount rate of 9%.What is the net present value of the investment? Present value of an ordinary annuity of $1:
$$\begin{array} { | l | r | r | r | } \hline &{ 8 \% } &{ 9 \% } & { 10 \% } \\\hline 1 & 0.926 & 0.917 & 0.909 \\\hline 2 & 1.783 & 1.759 & 1.736 \\\hline 3 & 2.577 & 2.531 & 2.487 \\\hline 4 & 3.312 & 3.24 & 3.17 \\\hline 5 & 3.993 & 3.89 & 3.791 \\\hline\end{array}$$

• A)$238,280
• B)$337,800
• C)$341,880
• D)$220,000

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Definitions:

Permutations

The arrangement of all the members of a set into some sequence or order, or if the set is already ordered, rearranging its elements, a process called permuting.

Random Experiment

An experiment or process that leads to uncertain outcomes, each with definable probabilities.

Binomial Distribution

A probability distribution that summarizes the likelihood that a value will take one of two independent states across a series of experiments or trials.

Expected Value

The sum of all possible values each multiplied by the probability of its occurrence, often used in probability theory to predict the average outcome of a random event over the long term.