Industrialization Enterprise is considering a three-year project that will require an initial investment of $44,000. If market demand is strong, Industrialization Enterprise thinks that the project will generate cash flows of $28,000 per year. However, if market demand is weak, the company believes that the project will generate cash flows of only $1,250 per year. The company thinks that there is a 50% chance that demand will be strong and a 50% chance that demand will be weak. If the company uses a project cost of capital of 10%, what will be the expected net present value (NPV) of this project? (Note: Do not round intermediate calculations and round your answer to the nearest whole dollar) O-$9,156 O-$7,630 O-$8,774 O-$8,012 Industrialization Enterprise has the option to delay starting this project for one year so that analysts can gather more information about whether demand will be strong or weak. If the company chooses to delay the project, it will have to give up a year of cash flows, because the project will then be only a two-year project. However, the company will know for certain if the market demand will be strong or weak before deciding to invest in it. What will be the expected NPV if Industrialization Enterprise delays starting the project? (Note: Do not round intermediate calculations and round your answer to the nearest whole dollar) O$9,704
Industrialization Enterprise is considering a three-year project that will require an initial investment of $44,000. If market demand is strong, Industrialization Enterprise thinks that the project will generate cash flows of $28,000 per year. However, if market demand is weak, the company believes that the project will generate cash flows of only $1,250 per year. The company thinks that there is a 50% chance that demand will be strong and a 50% chance that demand will be weak. If the company uses a project cost of capital of 10%, what will be the expected net present value (NPV) of this project? (Note: Do not round intermediate calculations and round your answer to the nearest whole dollar) O-$9,156 O-$7,630 O-$8,774 O-$8,012 Industrialization Enterprise has the option to delay starting this project for one year so that analysts can gather more information about whether demand will be strong or weak. If the company chooses to delay the project, it will have to give up a year of cash flows, because the project will then be only a two-year project. However, the company will know for certain if the market demand will be strong or weak before deciding to invest in it. What will be the expected NPV if Industrialization Enterprise delays starting the project? (Note: Do not round intermediate calculations and round your answer to the nearest whole dollar) O$9,704
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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Transcribed Image Text:Industrialization Enterprise has the option to delay starting this project for one year so that analysts can gather more information about whether
demand will be strong or weak. If the company chooses to delay the project, it will have to give up a year of cash flows, because the project will then
be only a two-year project. However, the company will know for certain if the market demand will be strong or weak before deciding to invest in it.
What will be the expected NPV if Industrialization Enterprise delays starting the project? (Note: Do not round intermediate calculations and round
your answer to the nearest whole dollar.)
$9,704
$1,880
O$9,719
O $2,089
What is the value of Industrialization Enterprise's option to delay the start of the project? (Note: Do not round intermediate calculations and round i
your answer to the nearest whole dollar)
O $1,880
O $2,089
O $9,719
$9,704
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Transcribed Image Text:Industrialization Enterprise is considering a three-year project that will require an initial investment of $44,000. If market demand is
strong, Industrialization Enterprise thinks that the project will generate cash flows of $28,000 per year. However, if market demand is
weak, the company believes that the project will generate cash flows of only $1,250 per year. The company thinks that there is a 50%
chance that demand will be strong and a 50% chance that demand will be weak.
If the company uses a project cost of capital of 10%, what will be the expected net present value (NPV) of this project? (Note: Do not round
intermediate calculations and round your answer to the nearest whole dollar)
Ⓒ-$9,156
O-$7,630
O-$8,774
O-$8,012
Industrialization Enterprise has the option to delay starting this project for one year so that analysts can gather more information about whether
demand will be strong or weak. If the company chooses to delay the project, it will have to give up a year of cash flows, because the project will then.
be only a two-year project. However, the company will know for certain if the market demand will be strong or weak before deciding to invest in it.
What will be the expected NPV if Industrialization Enterprise delays starting the project? (Note: Do not round intermediate calculations and round
your answer to the nearest whole dollar)
$9,704
$1,880
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