Scenario 15.6: Consider the Following Decision That Eileen Has to Make

Multiple Choice

Scenario 15.6:
Consider the following decision that Eileen has to make:
Eileen is considering buying a $4000 computer for her daughter. Eileen hopes that with the computer her daughter's schoolwork will improve so much that in two years time she will be offered a full-ride scholarship to college. The scholarship is paid for four years and is valued at $25,000 per year. Even with the computer the probability that the scholarship will be awarded is 10%.
-Refer to Scenario 15.6. What formula shows the expected NPV of this purchase?

A) -$4000 + $2500(1/1.1² + 1/1.1³ + 1/1.1⁵ + 1/1.1⁵)
B) -$4000 + $25,000(1/1.1² + 1/1.1³ + 1/1.1⁵ + 1/1.1⁵)
C) -$4000 + (4 times $2500)
D) -$4000 + (4 times $25,000)
E) 4 ^∗ $2500