Ernst Is Analyzing a Project and Has Determined That the Initial

question 26

Multiple Choice

Ernst is analyzing a project and has determined that the initial cost will be $423,000 and the required rate of return needs to be 16 percent.The project has a 2 percent chance of success and a 98 percent chance of failure.If the project fails,it will generate an annual cash flow of -$131,000.If the project succeeds,the annual cash flow will be $789,000.He has further determined that if the project is a failure,he can shut it down after the first two years but will not be able to recover any of his investment.If however,the project is a success,he can expand it after the second year with no additional investment and increase the cash flow to $1,020,000 a year for Years 3 and 4.At the end of Year 4,the project would be terminated and have no salvage value.What is the net present value of this project at Time 0?

• A)$1,850,050.32
• B)$49,666.71
• C)-$238,212.04
• D)$898,003.01
• E)-$579,412.95

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Definitions:

Sales Pitch

A presentation or argument designed to persuade or convince someone to purchase a product or service.

Lecture

A formal presentation or speech given to an audience or class on a particular subject.

Compositional Modes

Various methods or approaches used in writing and speaking to convey messages effectively, such as description, narration, exposition, and argument.

Status Updates

Brief messages or communications that report the current condition or situation of a project, task, or activity.