In: Finance
A firm is considering a $12,000 risky project. The expected cash flows are $3,000 in year 1, $5,000 in year 2, and $7,000 in year 3. The firm's cost of capital is 11%, but the financial manager uses a hurdle rate of 9% for less-risky projects and 13% for riskier projects. Should the firm invest in this riskier project?
No, the NPV is -$578.05
No, the NPV is -$120.85
Yes, the NPV is $578.05
Yes, the NPV is $120.85
Yes, the NPV is $365.98
The correct answer is option A i.e. No, the NPV is -$578.05
Year | Cashflow | PV @13% |
0 | $ -12,000 | $ -12,000 |
1 | $ 3,000 | $ 2,655 |
2 | $ 5,000 | $ 3,916 |
3 | $ 7,000 | $ 4,851 |
$ -578.05 |
Thumbs Up Please! Thank You