Question

A firm is considering a 4-year project with an initial investment of $400,000. During the first...

A firm is considering a 4-year project with an initial investment of $400,000. During the first year of operation, the project will bring an incremental cash flow of $100,000. The firm expects that the cash flow will grow at 15% annually. The project will be terminated after the fourth year of operation. If the required rate of return for this project is 17%, should the firm accept the project based on NPV criterion?

No, because the NPV is -$66,790

Yes, because the NPV is $35,370

Yes, because the NPV is $99,340.

Indifferent, because the NPV is $0.

No, because the NPV is -$125,680

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A firm is considering a 4-year project with an initial investment of $400,000. During the first...
A firm is considering a 4-year project with an initial investment of $400,000. During the first year of operation, the project will bring an incremental cash flow of $100,000. The firm expects that the cash flow will grow at 15% annually. The project will be terminated after the fourth year of operation. If the required rate of return for this project is 17%, should the firm accept the project based on NPV criterion? Group of answer choices Indifferent, because the...
A firm is considering three different projects for investment. Project A will require an initial investment...
A firm is considering three different projects for investment. Project A will require an initial investment of $100,000 today and will generate annual cash flows of $25,000 for a five-year period. Project B will require an initial investment of $150,000 today will generate annual cash flows of $35,000 for a five-year period. Project C will require an initial investment of $275,000 today, and will generate a cash flow of $75,000 in the first year. Cash flows will grow by 3%...
A firm is considering three different projects for investment.  Project A will require an initial investment of...
A firm is considering three different projects for investment.  Project A will require an initial investment of $100,000 today and will generate annual cash flows of $25,000 for a five-year period.  Project B will require an initial investment of $150,000 today will generate annual cash flows of $35,000 for a five-year period.  Project C will require an initial investment of $275,000 today, and will generate a cash flow of $75,000 in the first year.  Cash flows will grow by 3% per year for project...
A firm is considering an investment opportunity today. The initial cash flow (year 0) will be...
A firm is considering an investment opportunity today. The initial cash flow (year 0) will be an investment of $50 million. The project is expected to generate a project cash flow of $5 million for year 1, and the firm expects project cash flows to increase by 4% per year over the life of the project. The project will run for 20 years, and the firm has a cost of capital of 11%. What is the NPV of this proposed...
A firm is considering an investment opportunity today. The initial cash flow (year 0) will be...
A firm is considering an investment opportunity today. The initial cash flow (year 0) will be an investment of $50 million. The project is expected to generate a project cash flow of $6 million for year 1, and the firm expects project cash flows to increase by 4% per year over the life of the project. The project will run for 20 years, and the firm has a cost of capital of 12%. What is the NPV of this proposed...
Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment...
Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment of $200,000. The fixed asset is three-year MACRS property for tax purposes. In four years, the equipment will be worth about half of what we paid for it. The project is estimated to generate $500,000 in annual sales, with costs of $400,000. The firm has to invest $100,000 in net working capital at the start. After that, net working capital requirements will be 25...
"Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment...
"Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment of $200,000. The fixed asset is three-year MACRS property for tax purposes. In four years, the equipment will be worth about half of what we paid for it. The project is estimated to generate $500,000 in annual sales, with costs of $400,000. The firm has to invest $100,000 in net working capital at the start. After that, net working capital requirements will be 25...
Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment...
Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment of $200,000. The fixed asset is three-year MACRS property for tax purposes. In four years, the equipment will be worth about half of what we paid for it. The project is estimated to generate $500,000 in annual sales, with costs of $400,000. The firm has to invest $100,000 in net working capital at the start. After that, net working capital requirements will be 25...
A firm is considering investing in a project that requires an initial investment of $200,000 and...
A firm is considering investing in a project that requires an initial investment of $200,000 and is expected to produce cash inflows of $60,000, $80,000, and $100,000 in first, second, and third years. There will be no residual value. The firm applies a discount rate of 10%. Discount factors for Year 1, 2 and 3 are 0.909, 0.826, and 0.751 respectively. Required: i) Calculate the NPV of the project. ii) Explain the meaning of NPV and its advantages as an...
A firm is considering investing in a project that requires an initial investment of $200,000 and...
A firm is considering investing in a project that requires an initial investment of $200,000 and is expected to produce cash inflows of $60,000, $80,000, and $100,000 in first, second, and third years. There will be no residual value. The firm applies a discount rate of 10%. Discount factors for Year 1, 2 and 3 are 0.909, 0.826, and 0.751 respectively. Required: i) Calculate the NPV of the project. ii) Explain the meaning of NPV and its advantages as an...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT