4Lindsey and Tobias Have the Opportunity to Invest in a Project

question 58

Multiple Choice

4.Lindsey and Tobias have the opportunity to invest in a project that requires an investment of $3,000.There is a 35% chance of a $2,900 return;a 40% chance of a $3,400 return;and a 25% chance of a $4,500 return one year from now.Lindsey requires a 15% return on the project after the first year,but Tobias requires a return of only 12%.Using the expected rate of return:

• A)Lindsey and Tobias should both invest in the project
• B)Only Tobias should invest in the project
• C)Only Lindsey should invest in the project
• D)Lindsey and Tobias should both reject the project

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Definitions:

Earnings Distribution

It is the way in which a company allocates its earnings among shareholders, reinvestment into the business, or other financial obligations.

Horizontal Analysis

This is a financial analysis method that compares historical financial information over a series of reporting periods to identify trends and growth patterns.

Percentage Change

The measure of the degree of change over time and is used to express the relative difference between two numbers as a percentage.

Financial Statements

Documents presenting a detailed summary of a corporation's financial health, which encompasses the income statement, balance sheet, and cash flow statement.