A project has an initial cost of $70,400, expected net cash inflows of $14,000 per year for 12 years, and a cost of capital of 8%. What is the project’s NPV? (Hint: Begin by constructing a timeline.)
A project is expected to create operating cash flows of $25,000 a year for three years. The initial cost of the fixed assets is $52,000. These assets will be worthless at the end of the project. An additional $3,500 of net working capital will be required throughout the life of the project. What is the project’s net present value if the required rate of return is 12 percent?
A company is considering a new project. The company’s CFO plans to calculate the project’s NPV by discounting the relevant cash flows (which include the initial investment, the operating cash flows, and the salvage values) at the company’s cost of capital. Which of the following factors should the CFO include when estimating the relevant cash flows?
a. Any sunk costs associated with the project
b. Any interest expenses associated with the project
c. Any opportunity costs associated with the project
d. Statements b and c are correct.
e. All of the statements above are correct.
A restaurant is for sale for $200,000. It is estimated that the restaurant will earn $20,000 a year for the next 15 years. At the end of 15 years, it is estimated that the restaurant will sell for $350,000. Which of the following would be MOST LIKELY to occur if the investor’s required rate of return is 15 percent?
a. Investor would pursue the project.
b. Investor would not pursue the project.
c. Investor would pursue the project if the holding period were longer than 15 years.
d. Not enough information provided.
