You are the CFO of a major pharmaceutical firm. A division manager has presented senior management with an investment opportunity.

The project would require an investment of $95 million today

If the project succeeds, it will be worth $1 billion in a year. You estimate that there is only a 10% chance that the venture would succeed. If it fails, then in a year you will scrap the project and all of your firm’s $95 million investment will be lost.

Whether the venture succeeds or fails is independent of general market conditions.

The risk-free rate is 3%, the expected return of the market is 12%, and the standard deviation of the market return is 20%. Ignore taxes.

What is the NPV of the project?

$775 million

$870 million

$2.1 million

-$95 million

What part of the rational model of decision-making does the former business executive “elliott” have a problem completing?

As a result of a labeling mistake at the chemical factory, a farmer accidentally sprays weedkiller rather than fertilizer on half her land. as a result, she loses half of her productive farmland. if the property of diminishing returns applies to all factors of production, she should expect to seea. a decrease in the marginal productivity of her remaining land and an increase in the marginal productivity of her labor. b. an increase in the marginal productivity of her remaining land and an increase in the marginal productivity of her labor. c. an increase in the marginal productivity of her remaining land and a decrease in the marginal productivity of her labor. d. a decrease in the marginal productivity of her remaining land and a decrease in the marginal productivity of her labor.

Which type of unemployment would increase if workers lost their jobs because their positions were replaced by an automated process? a) cyclical b) frictional c) international d) structural