NPV unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The project cash flow of the restaurant is an initial cost of $1,500,000 with cash flows over the next six years of $200,000 (year one), $250,000 (year two), $300,000 (years three through five), and $1,750,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,400,000 with cash flows over the next four years of $400,000 ( years one through three) and $3,000,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is 11.0% and the appropriate discount rate for the sports facility is 13.0%, use the NPV to determine which project Grady should choose for the parcel of land. (Find the NPV for both the restaurant and the sports facility). Adjust the NPV for unequal lives with the equivalent annual annuity for both projects. Based on the adjusted NPV which project should be chosen. Does the decision change?
NPV unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The project cash flow of the restaurant is an initial cost of $1,500,000 with cash flows over the next six years of $200,000 (year one), $250,000 (year two), $300,000 (years three through five), and $1,750,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,400,000 with cash flows over the next four years of $400,000 ( years one through three) and $3,000,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is 11.0% and the appropriate discount rate for the sports facility is 13.0%, use the NPV to determine which project Grady should choose for the parcel of land. (Find the NPV for both the restaurant and the sports facility). Adjust the NPV for unequal lives with the equivalent annual annuity for both projects. Based on the adjusted NPV which project should be chosen. Does the decision change?
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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NPV unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The project cash flow of the restaurant is an initial cost of $1,500,000 with cash flows over the next six years of $200,000 (year one), $250,000 (year two), $300,000 (years three through five), and $1,750,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,400,000 with cash flows over the next four years of $400,000 ( years one through three) and $3,000,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is 11.0% and the appropriate discount rate for the sports facility is 13.0%, use the NPV to determine which project Grady should choose for the parcel of land. (Find the NPV for both the restaurant and the sports facility). Adjust the NPV for unequal lives with the equivalent annual annuity for both projects. Based on the adjusted NPV which project should be chosen. Does the decision change?
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