please help answer the question referring to the *suppose your boss...
ANSWER : LAST OPTION IS CORRECT. (THUMBS UP PLEASE)
AS NPV TAKES INTO ACCOUNT BOTH CASH FLOWS AND ITS TIMINGS, IT DOES NOT NECESSARILY IMPLY THAT TOTAL HIGHER SUM OF CASH FLOWS ARE ALWAYS BETTER.
FOR EXAMPLE :
IF A PERSON RECEIVED 10000 TODAY AND 12000 AFTER 5 YEARS, THEN PRESENT VALUE AT 10% WILL BE
FOR TODAY : 10000 WILL BE 10000 TODAY
FOR 5 YEARS : 12000 WILL BE = 12000*(1/1.105) = 7451.06
SO CASH FLOW OF 12000 IS HIGHER THAN 10000 BUT IT HAS LOWER PRESENT VALUE
please help answer the question referring to the *suppose your boss... Making the accept or reject...
Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Black Sheep Broadcasting Company is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $2,750,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 Year 2 Year 3 Year 4 $300,000 $475,000 $500,000...
Ch 11: Assignment - The Basics of Capital Budgeting OX Suppose Blue Hamster Manufacturing Inc. is evaluating a proposed capital budgeting project (project Beta) that will require an initial Investment of $2,750,000. The project is expected to generate the following net cash flows: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $325,000 $475,000 $500,000 $400,000 Blue Hamster Manufacturing Inc.'s weighted average cost of capital is 7%, and project Beta has the same risk as the firm's average...
Suppose Blue Hamster Manufacturing Inc. is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $2,500,000. The project is expected to generate the following net cash flows: Cash Flow Year Year 1 $325,000 $500,000 Year 2 $475,000 Year 3 $500,000 4 Blue Hamster Manufacturing Inc.'s weighted average cost of capital is 10%, and project Beta has the same risk as the firm's average project. Based on the cash flows, what is project Beta's NPV?...
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1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Blue Hamster Manufacturing Inc. is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $2,750,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $375,000 Year 2 $425,000...
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