Rosita's Is Considering a Project That Has Been Assigned a Discount

question 43

Multiple Choice

Rosita's is considering a project that has been assigned a discount rate of 12 percent.If the firm starts the project today,it will incur an initial cost of $38,260 and will receive cash inflows of $18,320 a year for three years.If the firm waits one year to start the project,the initial cost will rise to $40,500 and the cash flows will increase to $18,640 a year for three years.What is the value of the option to wait?

• A)$848.29
• B)-$1,471.42
• C)$489.20
• D)-$681.04
• E)-$1,928.93

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Definitions:

Budgeting

The process of creating a plan to spend your money, outlining projected income and expenses over a specific period.

Actual Results

The genuine outcomes of a business's operations, such as actual sales, expenses, or profit, as opposed to forecasts or estimates.

Personnel Expenses

Costs incurred by a company to employ its workforce, including wages, benefits, and taxes.

Client-visits

Client-visits refer to the occasions on which a service provider or salesperson goes to see clients in their place of business or home.