Question

Problem 86 You have been offered a unique investment opportunity. If you invest $10.000 today, you will receive $500 one year from now. $1.500 two years from now and $10.000 ten years from now Complete the steps belowing cell references to vendar previous calculations in some cases a simple cell reference is all you need to composte a formulacross a row or down a common absolute cell reference aramidal n e may be preferred Ifa specific Excel function is to be on the directions the of that function. Do not type in numerical data into a cell or function. Inna make a reference to the cell in which the data is found Make your computations only in the cells highlighted below in all case s sochen directed use the earliest appearance of the date in your formules wally the Giver Data section. a. What is the NPV of the opportunity if the cost of capital is 6% per year? Should you take the opportunity? b. What is the NPV of the opportunity if the cost of capital is 2% per year? Should you take it now? $ 10.000 Initial investment Cash flow year 1 Cash flow year 2 Cash flow year 10 $ 1.500 a. What is the NPV of the opportunity if the cost of capital is 6% per year? Should you take the opportunity? Cost of capital NPV Take opportunity (Yes/Nal b. What is the NPV of the opportunity if the cost of capital is 25 per year? Should you take it now? Cost of capital NPV Take opportunity Yes No equirements In cell 017, by using cell references, write an expression to calculate the NPV of the investment opportunity (1 pt.) In cell D18type Ves or No depending on whether you would take the opportunity or not (pl.). In cell DZL by using cell references, write an expression to calculate the NPV of the investment opportunity (1 pt.). In cell D25, type Yes or No depending on whether you would take the opportunity or not (1 pt.).

Answer 1

1. NPV= (CF/(1+r/100)^t)-Inital investment

in case 1:- cost of capital is 6%

NPV=[( 500/(1+6/100)^1+1500/(1+6/100)^2+10000/(1+6/100)^10)]-10000

=[(500/(1.06)^1)+(1500/(1.06)^2)+(10000/(1.06)^10)]-10000

=(471.70+1335+5583.95)-10000

=-2609.35

2. As NPV is negative so we will not take the project.

3. NPV= (CF/(1+r/100)^t)-Inital investment

in case 1:- cost of capital is 2%

NPV=[( 500/(1+2/100)^1+1500/(1+2/100)^2+10000/(1+2/100)^10)]-10000

=[(500/(1.02)^1)+(1500/(1.02)^2)+(10000/(1.02)^10)]-10000

=(490.20+1441.75+8203.48)-10000

=135.43

2. As NPV is Positive so we will take the project.