Kwon Jewelers is evaluating a 1-year project that would involve an initial investment in equipment of $32,000 and an expected cash flow of $36,000 in 1 year. The project has a cost of capital of 8.36 percent and an internal rate of return of 12.50 percent. If Kwon Jewelers were to use $32,000 in cash from its bank account to purchase the equipment, the net present value of the project would be $1,222.59. However, Kwon Jewelers has no cash in its bank account, so using money from its account is not possible. Therefore, the firm would need to borrow money to raise the $32,000. If Kwon Jewelers were to borrow money to raise the $32,000, the interest rate on the loan would be 13.47 percent. Kwon Jewelers would receive $32,000 at the start of the project and would pay $36,310 one year later. What is the NPV of the project if Kwon Jewelers borrows $32,000 to pay for the project? $1,222.59 (plus or minus 3 dollars) $0.00 (plus or minus 3 dollars) $-273.55 (plus or minus 3 dollars) $1,509.04 (plus or minus 3 dollars) none of the answers are within 3 dollars of the correct answer
Kwon Jewelers is evaluating a 1-year project that would involve an initial investment in equipment of $32,000 and an expected cash flow of $36,000 in 1 year. The project has a cost of capital of 8.36 percent and an internal rate of return of 12.50 percent. If Kwon Jewelers were to use $32,000 in cash from its bank account to purchase the equipment, the net present value of the project would be $1,222.59. However, Kwon Jewelers has no cash in its bank account, so using money from its account is not possible. Therefore, the firm would need to borrow money to raise the $32,000. If Kwon Jewelers were to borrow money to raise the $32,000, the interest rate on the loan would be 13.47 percent. Kwon Jewelers would receive $32,000 at the start of the project and would pay $36,310 one year later. What is the NPV of the project if Kwon Jewelers borrows $32,000 to pay for the project? $1,222.59 (plus or minus 3 dollars) $0.00 (plus or minus 3 dollars) $-273.55 (plus or minus 3 dollars) $1,509.04 (plus or minus 3 dollars) none of the answers are within 3 dollars of the correct answer
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter26: Real Options
Section: Chapter Questions
Problem 3P: Wansley Lumber is considering the purchase of a paper company, which would require an initial...
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![Kwon Jewelers is evaluating a 1-year project that would involve an initial investment in equipment of $32,000 and an expected cash flow of $36,000 in 1 year.
The project has a cost of capital of 8.36 percent and an internal rate of return of 12.50 percent. If Kwon Jewelers were to use $32,000 in cash from its bank
account to purchase the equipment, the net present value of the project would be $1,222.59. However, Kwon Jewelers has no cash in its bank account, so
using money from its account is not possible. Therefore, the firm would need to borrow money to raise the $32,000. If Kwon Jewelers were to borrow money
to raise the $32,000, the interest rate on the loan would be 13.47 percent. Kwon Jewelers would receive $32,000 at the start of the project and would pay
$36,310 one year later. What is the NPV of the project if Kwon Jewelers borrows $32,000 to pay for the project?
$1,222.59 (plus or minus 3 dollars)
$0.00 (plus or minus 3 dollars)
$-273.55 (plus or minus 3 dollars)
$1,509.04 (plus or minus 3 dollars)
none of the answers are within 3 dollars of the correct answer](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F19d0c0ee-b2f7-4400-bddc-d84e0eebb818%2Feaabcb23-afaf-4d18-8b6e-085dadc0e333%2Fowjmbu_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Kwon Jewelers is evaluating a 1-year project that would involve an initial investment in equipment of $32,000 and an expected cash flow of $36,000 in 1 year.
The project has a cost of capital of 8.36 percent and an internal rate of return of 12.50 percent. If Kwon Jewelers were to use $32,000 in cash from its bank
account to purchase the equipment, the net present value of the project would be $1,222.59. However, Kwon Jewelers has no cash in its bank account, so
using money from its account is not possible. Therefore, the firm would need to borrow money to raise the $32,000. If Kwon Jewelers were to borrow money
to raise the $32,000, the interest rate on the loan would be 13.47 percent. Kwon Jewelers would receive $32,000 at the start of the project and would pay
$36,310 one year later. What is the NPV of the project if Kwon Jewelers borrows $32,000 to pay for the project?
$1,222.59 (plus or minus 3 dollars)
$0.00 (plus or minus 3 dollars)
$-273.55 (plus or minus 3 dollars)
$1,509.04 (plus or minus 3 dollars)
none of the answers are within 3 dollars of the correct answer
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