Today January 1, 2022, you have been named CFO of iSoftCloud, Inc., a startup in the cloud software industry. The previous CFO already committed to two projects down the road: Project A is about to start on January 1, 2028 (that is six years from today) and lasts for 6 years (it is closed down on December 31, 2033). On each January 1 of the calendar years of 2028 to 2033, Project A needs an infusion of capital (investment) of $1.0 million. The cost of capital (discount rate) for Project A is 10.0% Project B is about to start in a few minutes from your celebration of being named the CFO, in other words it has to start on January 1, 2022 (that is today) and lasts for 6 years (it is closed down on December 31, 2027). On each January 1 of the calendar years of 2022 (that is starting today) to 2027, Project B needs an infusion of capital (investment) of $1.0 million. The cost of capital (discount rate) for Project B is 15.0% What is the present value as of today, January 1, 2022, of the total funds you’ll need to invest for the two projects? If you have the option to postpone the starting date for Project B to start on the same date as Project A but that would require a capital infusion (investment) of $2.0 million on each January 1 of the calendar years of 2028 to 2033, would you do it? Assume the life, six years, and cost of capital (discount rate) of 15.0% for Project B are unchanged. Assume Project A starts on January 1, 2028 as described above and Project B starts today, on January 1, 2022, as described above, both last for six years and requires the yearly investments as described above. Your assistant reminds you that you still have to calculate the NPV for the two projects. She provides you with the following: The present value, as of today, of all the benefits from Project A is $3.0 million. The present value, as of today, of all the benefits from Project B is $4.0 million. What is the NPV? If you could cancel any of the two projects, would you? Which one and why?

Today January 1, 2022, you have been named CFO of iSoftCloud, Inc., a startup in the cloud software industry. The previous CFO already committed to two projects down the road: Project A is about to start on January 1, 2028 (that is six years from today) and lasts for 6 years (it is closed down on December 31, 2033). On each January 1 of the calendar years of 2028 to 2033, Project A needs an infusion of capital (investment) of $1.0 million. The cost of capital (discount rate) for Project A is 10.0% Project B is about to start in a few minutes from your celebration of being named the CFO, in other words it has to start on January 1, 2022 (that is today) and lasts for 6 years (it is closed down on December 31, 2027). On each January 1 of the calendar years of 2022 (that is starting today) to 2027, Project B needs an infusion of capital (investment) of $1.0 million. The cost of capital (discount rate) for Project B is 15.0% What is the present value as of today, January 1, 2022, of the total funds you’ll need to invest for the two projects? If you have the option to postpone the starting date for Project B to start on the same date as Project A but that would require a capital infusion (investment) of $2.0 million on each January 1 of the calendar years of 2028 to 2033, would you do it? Assume the life, six years, and cost of capital (discount rate) of 15.0% for Project B are unchanged. Assume Project A starts on January 1, 2028 as described above and Project B starts today, on January 1, 2022, as described above, both last for six years and requires the yearly investments as described above. Your assistant reminds you that you still have to calculate the NPV for the two projects. She provides you with the following: The present value, as of today, of all the benefits from Project A is $3.0 million. The present value, as of today, of all the benefits from Project B is $4.0 million. What is the NPV? If you could cancel any of the two projects, would you? Which one and why?

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

Today January 1, 2022, you have been named CFO of iSoftCloud, Inc., a startup in the cloud software industry. The previous CFO already committed to two projects down the road:

Project A is about to start on January 1, 2028 (that is six years from today) and lasts for 6 years (it is closed down on December 31, 2033). On each January 1 of the calendar years of 2028 to 2033, Project A needs an infusion of capital (investment) of $1.0 million. The cost of capital (discount rate) for Project A is 10.0%
Project B is about to start in a few minutes from your celebration of being named the CFO, in other words it has to start on January 1, 2022 (that is today) and lasts for 6 years (it is closed down on December 31, 2027). On each January 1 of the calendar years of 2022 (that is starting today) to 2027, Project B needs an infusion of capital (investment) of $1.0 million. The cost of capital (discount rate) for Project B is 15.0%

What is the present value as of today, January 1, 2022, of the total funds you’ll need to invest for the two projects?
If you have the option to postpone the starting date for Project B to start on the same date as Project A but that would require a capital infusion (investment) of $2.0 million on each January 1 of the calendar years of 2028 to 2033, would you do it? Assume the life, six years, and cost of capital (discount rate) of 15.0% for Project B are unchanged.
Assume Project A starts on January 1, 2028 as described above and Project B starts today, on January 1, 2022, as described above, both last for six years and requires the yearly investments as described above. Your assistant reminds you that you still have to calculate the NPV for the two projects. She provides you with the following:

The present value, as of today, of all the benefits from Project A is $3.0 million.
The present value, as of today, of all the benefits from Project B is $4.0 million.

What is the NPV? If you could cancel any of the two projects, would you? Which one and why?

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