Question

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Question 1 of 25 A developer at Google wants to convince the finance department that investing in the Google glasses project is a good idea. The project needs a $50 million budget, and estimated cash flows from selling Google glasses will be $70 million the following year. The discount rate of this project is 12%. The marketing department wants to use the $50 million budget to advertise the Google TV instead. They expect the advertising campaign will increase cash flows from TV sales by $20 million for 4 years, the first sales arrives in one year. The appropriate discount rate for this project is 8%. Which of two investments should the financial manager of Google invest in? O A. Google TV advertising, since the IRR is higher than the IRR of the Google glasses development. B. Google glasses development, since the IRR is higher than the benchmark. C. Google glasses since the NPY is higher. D. Google TV since the NPV is higher. Best Selection

Answer 1

1) D)

NPV for Google Lens is $12.5M while for Google TV it is 16.25M

2) D) 0

10000 is already spent and shall be considered as a Sunk cost, not part of project cashflow

3) D) 622.93

Coupon Rate will give it a value of 565.62 and Face Value paid at MAturity will give 57.31 thus $622.93 the price

4) C. 75000

Revenue 200000

Expense 100000

Income from Asset Sale 10000

Total Income: 110000

Taxable Income: 110000-10000 (for straight line depreciation) = 100000

Tax@35% = 35000

Cashflow post Tax = 110000-35000 = 75000

5) C 10000

As company is depreciating the asset worth 30K at $10K each year