# Net Present Value Method ### Consider the case of Underwood Manufacturing: Underwood Manufacturing is evaluating a proposed capital budgeting project that will require an initial investment of $120,000. The project is expected to generate the following net cash flows: | Year | Cash Flow | |-------|-----------| | Year 1| $37,600 | | Year 2| $50,500 | | Year 3| $45,000 | | Year 4| $41,900 | Assume the desired rate of return on a project of this type is 10%. What is the net present value of this project? - ⭘ \(-$4,415.10\) - ⭘ \( $18,344.79 \) - ⭘ \(-$7,244.50\) - ⭘ \( $23,914.50 \) Suppose Underwood Manufacturing has enough capital to fund the project, and the project is not competing for funding with other projects. Should Underwood Manufacturing accept or reject this project? - ⭘ Accept the project - ⭘ Reject the project

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
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# Net Present Value Method

### Consider the case of Underwood Manufacturing:

Underwood Manufacturing is evaluating a proposed capital budgeting project that will require an initial investment of $120,000. The project is expected to generate the following net cash flows:

| Year  | Cash Flow |
|-------|-----------|
| Year 1| $37,600   |
| Year 2| $50,500   |
| Year 3| $45,000   |
| Year 4| $41,900   |

Assume the desired rate of return on a project of this type is 10%. What is the net present value of this project?

- ⭘ \(-$4,415.10\)
- ⭘ \( $18,344.79 \)
- ⭘ \(-$7,244.50\)
- ⭘ \( $23,914.50 \)

Suppose Underwood Manufacturing has enough capital to fund the project, and the project is not competing for funding with other projects. Should Underwood Manufacturing accept or reject this project?

- ⭘ Accept the project
- ⭘ Reject the project
Transcribed Image Text:# Net Present Value Method ### Consider the case of Underwood Manufacturing: Underwood Manufacturing is evaluating a proposed capital budgeting project that will require an initial investment of $120,000. The project is expected to generate the following net cash flows: | Year | Cash Flow | |-------|-----------| | Year 1| $37,600 | | Year 2| $50,500 | | Year 3| $45,000 | | Year 4| $41,900 | Assume the desired rate of return on a project of this type is 10%. What is the net present value of this project? - ⭘ \(-$4,415.10\) - ⭘ \( $18,344.79 \) - ⭘ \(-$7,244.50\) - ⭘ \( $23,914.50 \) Suppose Underwood Manufacturing has enough capital to fund the project, and the project is not competing for funding with other projects. Should Underwood Manufacturing accept or reject this project? - ⭘ Accept the project - ⭘ Reject the project
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