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 projectedcash flow of the restaurant is an initial cost of $1,600,000 with cash flows over the next six years of $180,000 (year one), $290,000 (year two), $270,000 (years three through five), and $1,760,000 (year six), at whichpoint Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,430,000 with cash flows over the next four years of $440,000 (years one through three) and $3,050,000 (yearfour), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is 10.0% and the appropriate discount rate for the sports facility is 12.0%, use the NPV to determine which projectGrady should choose for the parcel of land. Adjust the NPV for unequal lives with the equivalent annual annuity. Does the decision change?

Let us first determine the NPV of the two projects. We know that NPV = sum of all PVs PV = cash flow…

Answered: NPV unequal lives. Grady Enterprises is…

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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