Bahwan Company is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investments of $40,000 at time 0 and $50,000 in year 1. After-tax cash flows of $35,000 are expected in year 2, $45,000 in year 3, $35,000 in year 4. If the required rate of return is 16%, a) what is the net present value of the project? Is it acceptable? b) What is the project's payback period? Select one: a. None of the other three answers b. NPV= 8932, Acceptable, Pay back = 2 years c. NPV=-8932, Not acceptable, Pay back = 27.4 months d. NPV=-8932, Not Acceptable, Pay back = 2 years

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
icon
Related questions
Question

Bahwan Company is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investments of $40,000 at time 0 and $50,000 in year 1. After-tax cash flows of $35,000 are expected in year 2, $45,000 in year 3, $35,000 in year 4. If the required rate of return is 16%, a) what is the net present value of the project? Is it acceptable? b) What is the project's payback period?

Select one:

a. None of the other three answers

b. NPV= 8932, Acceptable, Pay back = 2 years

c. NPV=-8932, Not acceptable, Pay back = 27.4 months
d. NPV=-8932, Not Acceptable, Pay back = 2 years

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 5 steps with 1 images

Blurred answer
Knowledge Booster
Capital Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education