You've graduated from college and are now working in an investment firm where you advise clients on investment decisions. Here is the information on the proposed project. Up-front cost: $100,000
Next year's revenue: $15,000
Real interest rate: 7%
Depreciation rate: 3%
What is the present value of the stream of payments from this project?
A. $500,000
B. $85,000
C. $115,000
D. $150,000

B. $85,000

Explanation:

The client should not invest in the project as the income stream is low and the NPV of the project will be negative. The client should not invest in a project whose net present value is negative which means its total cost is greater than the total revenue that will be generated from the project.

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

answerdemographic;