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How should you determine whether to take or reject a project? What measure should you use...

How should you determine whether to take or reject a project? What measure should you use to figure out the dollar value of the project today?

If the rate of return is positive, can percentage price change be negative? How many years will it take you to double your money if your rate of return is 7% annually?

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Expert Solution

1: the decision of undertaking or rejecting a project can be made with the help of capital budgeting techniques. The net present value method is the most popular technique which allows you to assess the value added by undertaking a particular project. For this the cash flows associated with the project are first determined after which they are discounted at the weighted average cost of capital of the business. The sum of the discounted cash flows is the net present value. If this figure is positive, the project should be undertaken else it should be rejected.

2: if the rate of return is positive there will be an increase in the price and hence the percentage change in price will be positive as well. For calculating the number of years it will take to double the money, assume PV = -100, FV required = 200

R = 7

Solving for n using a financial calculator

N = 10.24

Hence it will take 10.24 years to double one’s money.

jeff jeffy answered 1 year ago
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