17. ABC PHARMACEUTICAL CORP. IS PLANNING ON UNDERTAKING A NEW PROJECT. THE INITIAL CASH OUTLAY IS...
17. ABC PHARMACEUTICAL CORP. IS PLANNING ON UNDERTAKING A NEW PROJECT. THE INITIAL CASH OUTLAY IS $50,000, WITH PROJECTED CASH INFLOWS OF $20,000 PER YEAR FOR THE PROJECT’S 4 YEAR LIFE. ASSUMING A COST OF CAPITAL OF 10%, SHOULD THIS COMPANY ACCEPT THE PROJECT?
Homework Answers
| Statement Computing NPV | In $ | |||
| Year | Cash flows | Discount factor 10% | Discounted Values | |
| 0 | -50000.00 | 1.000 | -50000.00 | |
| 1 | 20000.00 | 0.909 | 18181.82 | |
| 2 | 20000.00 | 0.826 | 16528.93 | |
| 3 | 20000.00 | 0.751 | 15026.30 | |
| 4 | 20000.00 | 0.683 | 13660.27 | |
| NPV | 13397.31 | |||
| NPV = PVCI-PVCO | ||||
| Decision | Since NPV of the Project is Positive Hence Project should be accepted |
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17. ABC PHARMACEUTICAL CORP. IS PLANNING ON UNDERTAKING A NEW
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