Use the Following Information to Answer the Following Question(s)

question 3

Multiple Choice

Use the following information to answer the following question(s) .
Enrico,the owner of a pizza parlor near a large university campus,is considering opening a shop specializing in quick,inexpensive take-out meals that are low in fat and calories.He will use a vacant space adjacent to the pizza parlor.Assume that the project requires an initial cash outlay of $100,000.Finance students from the university have taken on the project as a course assignment.They believe that there is a 50% chance that the project will have modest success and return $11,000 per year for the foreseeable future (a perpetuity) .On the other hand,there is a 50% chance that the project will be highly successful and produce returns of $20,000 per year in perpetuity.If the restaurant is modestly successful,Enrico will keep it open,but not expand.If it is well received,he will immediately open 2 more shops at sites close to the sprawling campus.The additional shops would have approximately the same cash flow as the first.Cash flows will be discounted at 10%.
-What is the expected NPV of the project with the option to expand if the probability of modest success is revised to 70% and great success to 30%?

• A)$310,000
• B)$155,000 (no change)
• C)$213,000
• D)$97,000

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Definitions:

Emotional Information

Data or cues that relate to the feelings, emotions, or affective states of an individual or group.

Display Rules

Socially learned norms that dictate how and when emotions should be expressed in certain cultures or situations.

Stress Responses

Behavioral, mental, and/or physical responses to stressors.

Biological Systems

Complex networks of biologically relevant entities and processes that interact within living organisms to sustain life and enable function.