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1. Managers of CVS Pharmacy are considering a new project. This project would be a new...

1. Managers of CVS Pharmacy are considering a new project. This project would be a new store in Odessa, Texas. They calculate that the NPV for this project is -$300,000. What decision should the managers make, and why?

A. Accept the project, because NPV is positive.

B. Reject the project, because NPV is negative.

c. Accept the project, because NPV is negative.

D. Reject the project, because NPV is positive.

2. Olympus Property Management owns two million square feet of land (about 46 acres) in the Woodlands. The managers have two projects for developing this property:

  • Galleria West Shopping Plaza, NPV = $11 billion
  • Ben Dover Office Complex, NPV = $13 billion

Once developed, Olympus will manage the property for 30 years. The property has space for only one or the other of these projects.

Which project(s) should the management at Olympus Property choose, and why?

A. Ben Dover Office Complex, because it has the higher NPV, and its NPV > 0.

B. Galleria West Shopping Plaza, because it has the higher NPV, and its NPV > 0.

C. Both projects, because both have positive NPV.

D. Neither project, because both have negative NPV.

Solutions

Expert Solution

1. Managers of CVS Pharmacy are considering a new project. This project would be a new store in Odessa, Texas. They calculate that the NPV for this project is -$300,000. What decision should the managers make, and why?

B. Reject the project, because NPV is negative.

Explanation : Negative NPV will reduce the value of the company.

2. Olympus Property Management owns two million square feet of land (about 46 acres) in the Woodlands. The managers have two projects for developing this property:

  • Galleria West Shopping Plaza, NPV = $11 billion
  • Ben Dover Office Complex, NPV = $13 billion

Once developed, Olympus will manage the property for 30 years. The property has space for only one or the other of these projects.

Which project(s) should the management at Olympus Property choose, and why?

B. Galleria West Shopping Plaza, because it has the higher NPV, and its NPV > 0.

Explanation : Higher NPV will increase the value of the company.

jeff jeffy answered 10 months ago
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