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 projected cash flow of the restaurant is an initial cost of $1,560,000 with cash flows over the next six years of $160,000 (year one), $210,000 (year two), $250,000 (years three through five), and $1,730,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,320,000 with cash flows over the next four years of $370,000 (years one through three) and $2,740,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the testaurant is 10.5% 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. Adjust the NPV for unequal lives with the equivalent annual annuity. Does the decision change? If the appropriate discount rate for the restaurant is 10.5%, what is the NPV of the restaurant project? (Round to the nearest cent.)
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 projected cash flow of the restaurant is an initial cost of $1,560,000 with cash flows over the next six years of $160,000 (year one), $210,000 (year two), $250,000 (years three through five), and $1,730,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,320,000 with cash flows over the next four years of $370,000 (years one through three) and $2,740,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the testaurant is 10.5% 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. Adjust the NPV for unequal lives with the equivalent annual annuity. Does the decision change? If the appropriate discount rate for the restaurant is 10.5%, what is the NPV of the restaurant project? (Round to the nearest cent.)
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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Please answer all questions with explanations rounded to the nearest cent. Other parts -If the appropriate discount rate for the sports facility is 13.0%, what is the NPV of the sports facility, based on the NPV, Grady Enterprises should pick which project, what is the adjusted NPV equivalent annual annuity of the restaurant and the sports facility, based on the adjusted NPV, Grady Enterprises should pick which project, and does the decision change.
Transcribed Image Text: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 projected cash flow of the restaurant is an initial cost of $1,560,000 with cash flows over the next six years of $160,000 (year one), $210,000 (year two), $250,000
(years three through five), and $1,730,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,320,000 with
cash flows over the next four years of $370,000 (years one through three) and $2,740,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the
testaurant is 10.5% 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. Adjust the NPV
for unequal lives with the equivalent annual annuity. Does the decision change?
If the appropriate discount rate for the restaurant is 10.5%, what is the NPV of the restaurant project?
(Round to the nearest cent.)
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