The Initial Cost of a Project Is $10,000

question 54

Multiple Choice

The initial cost of a project is $10,000.  There is a 30% chance that it will be highly successful, in which case cash inflows of $4,500 are expected for the next four years.  There is a 70% chance that the project will be unsuccessful, in which case annual cash inflows of $3,200 are expected for four years.  The cost of capital is 12%.  What is the project's expected NPV?

• A)$3,688
• B)($281)
• C)$7,700
• D)$904

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Definitions:

Equivalent Interest Rate

A rate that converts interest rates of various compounding periods into an annual rate for comparison purposes.

Nearest 0.01%

Rounding a percentage to the closest one-hundredth of a percent.

Nearest 0.01%

Rounding a number or percentage to the closest hundredth of a percent for precision.

Emotions

Complex psychological states involving physiological arousal, feelings, cognitive processes, and behavioral reactions.