Roy Is Analyzing a Project and Has Determined That the Initial

question 77

Multiple Choice

Roy is analyzing a project and has determined that the initial cost will be $98,000 and the required rate of return needs to be 14 percent.The project has a 55 percent chance of success and a 45 percent chance of failure.If the project fails,it will generate an annual aftertax cash flow of $12,000.If the project succeeds,the annual aftertax cash flow will be $54,000.He has further determined that if the project fails,he will shut it down after the first year and lose all of his original investment.If however,the project is a success,he can expand it with no additional investment and increase the aftertax cash flow to $137,000 a year for Years 2-5.At the end of Year 5,the project would be terminated and have no salvage value.What is the net present value of this project at Time 0?

• A)$125,375.63
• B)$112,560.35
• C)$77,297.19
• D)$84,560.35
• E)$89,297.19

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Definitions:

Imports

Goods or services brought into one country from another, contributing to the supply in the domestic market and affecting the nation's trade balance.

Exports

Goods or services produced in one country and sold to buyers in another, contributing to national income.

GDP

Gross Domestic Product (GDP) is the total market value of all final goods and services produced within a country in a specified period.

Per Capita Real GDP

A measure of the average economic output per person, adjusted for inflation, in a given country.