Question
In: Finance
Net present value. Quark Industries has three potential projects, all with an initial cost of $1...
Net present
value.
Quark Industries has three potential projects, all with an initial cost of
$1 comma 900 comma 0001,900,000.
The capital budget for the year will allow Quark to accept only one of the three projects. Given the discount rate and the future cash flow of each project, determine which project Quark should accept.
|
Cash Flow |
Project M |
Project N |
Project O |
||||
|
Year 1 |
$500 comma 000500,000 |
$600 comma 000600,000 |
$1 comma 000 comma 0001,000,000 |
||||
|
Year 2 |
$500 comma 000500,000 |
$600 comma 000600,000 |
$800 comma 000800,000 |
||||
|
Year 3 |
$500 comma 000500,000 |
$600 comma 000600,000 |
$600 comma 000600,000 |
||||
|
Year 4 |
$500 comma 000500,000 |
$600 comma 000600,000 |
$400 comma 000400,000 |
||||
|
Year 5 |
$500 comma 000500,000 |
$600 comma 000600,000 |
$200 comma 000200,000 |
||||
|
Discount rate |
88% |
1111% |
1616% |
||||
Which project should Quark accept? (Select the best response.)
A.
Project Upper NProject N
B.
Project Upper OProject O
C.
Project Upper MProject M
D.
None of the projects
Solutions
Expert Solution
NPV Decision Rule:
Projects are Independent: Select Project only if the NPV of projects are positive
Projects are Mutually Exclusive: Select Project which gives highest NPV
Thus Option A Project N which gives highest NPV
Please dont forget to upvote
jeff jeffy answered 1 year agoRelated Solutions
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three projects. Given the discount rate and the future cash flow of
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Cash flow year four: $155,000
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Given the discount rate and the future cash flow of each project
in the following table,
Cash Flow Project M Project N Project O
Year 1 $400,000 $500,000 $900,000
Year 2 $400,000 $500,000
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Cash flow year three: $191,000
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Project C
Project D
Project E
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$26,000
$500,000
$170,000
$950,000
$80,000
Year
Cash inflows
1
$4,000
$100,000
$20,000
$230,000
$ 0
2
4,000
120,000
19,000
230,000
0
3
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140,000
18,000
230,000
0
4
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160,000
17,000
230,000
20,000
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Project B
Project C
Project D
Project E
Initial investment
$26,000
$500,000
$170,000
$950,000
$80,000
Year
Cash inflows
1
$4,000
$100,000
$20,000
$230,000
$ 0
2
4,000
120,000
19,000
230,000
0
3
4,000
140,000
18,000
230,000
0
4
4,000
160,000
17,000
230,000
20,000
5
4,000...
What is the net present value of this investment? INITIAL COST
What is the net present value of this
investment?
INITIAL
COST $500,000
PROJECT
LIFE 15
years
SALVAGE
VALUE $
20,000
ANNUAL NET CASH
FLOWS $120,000
DISCOUNT
RATE 15
%
a. $
203,684
b. $
204,142
c. $
205,669
d. $
206,263
e. $
208,721
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Product Line
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$790,052
$535,506
$310,018
Annual net cash flows:
Year 1
413,000
301,000
186,000
Year 2
384,000
271,000
128,000
Year 3
351,000
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Present Value of $1 at Compound
Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2...
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