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:

Reinforcement

A process in behavioral psychology where a behavior increases in frequency because it is followed by a rewarding stimulus.

Antecedent

Anything that occurs before a behavior that may trigger or cause a certain behavior to occur, often used in the analysis of behavior patterns.

Consequence

The result or effect of an action or condition, often seen in terms of how it affects an earlier event.

Enhancement

Refers to the improvement or intensification of qualities, performance, or characteristics, often through the use of technological, chemical, or psychological means.