A Corporation Is Assessing the Risk of Two Capital Budgeting

Multiple Choice

A corporation is assessing the risk of two capital budgeting proposals. The financial analysts have developed pessimistic, most likely, and optimistic estimates of the annual cash inflows which are given in the following table. The firm's cost of capital is 10 percent.
$$\begin{array} { c c c } & { \text { Project A } } \\\hline \text { Initial Investment } & \text { Annual cash inflow } & \text { Outcome } \\\hline { \$ 20,000 } & \$ 5,000 & \text { Pessimistic } \\& 10,000 & \text { Most likely } \\& 15,000 & \text { Optimistic } \\\\& \text { Project B } & \\\hline \text { Initial Investment } & \text { Annual cash inflow } & \text { Outcome } \\\hline { \text { \$100,000 } } & \$ 20,000 & \text { Pessimistic } \\& 40,000 & \text { Most likely } \\& 100,000 & \text { Optimistic }\end{array}$$
-The expected net present value of project A if the outcomes are equally probable and the projecthas five-year life is_________

A) $17,910
B) $36,865
C) $93,730
D) -$1,045