Pharoah Inc. is contemplating a capital project with a cost of $149000. The project will generate net cash flows of $44000 for year 1,$60000 for year 2 and $59000 for year 3. The asset has a salvage value of $10000 and straight-line depreciation will be used. Thecompany's required rate of return is 10%.Year1230 0 0 0Present Valueof 1 at 10%0.9090.8260.751PV of an Annuityof 1 at 10%0.9091.7362.487acceptable because it has a positive NPV.unacceptable because it has a zero NPV.unacceptable because it earns a rate less than 10%.acceptable because it has a return of greater than 10%.SUPPO

Net present value is the balance when present value of cash outflows is deducted from the present…

Answered: acceptable because it has a positive…

acceptable because it has a positive NPV. O unacceptable because it has a zero NPV. O unacceptable because it earns a rate less than 10%. O acceptable because it has a return of greater than 10%.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Pharoah Inc. is contemplating a capital project with a cost of $149000. The project will generate net cash flows of $44000 for year 1,
$60000 for year 2 and $59000 for year 3. The asset has a salvage value of $10000 and straight-line depreciation will be used. The
company's required rate of return is 10%.
Year
1
2
3
0 0 0 0
Present Value
of 1 at 10%
0.909
0.826
0.751
PV of an Annuity
of 1 at 10%
0.909
1.736
2.487
acceptable because it has a positive NPV.
unacceptable because it has a zero NPV.
unacceptable because it earns a rate less than 10%.
acceptable because it has a return of greater than 10%.
SUPPO

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