NUBD must choose one of two mutually exclusive projects. Project A has an up-front cost (t 0) of P120,000, and it is expected to produce cash inflows of P80,000 per year at the end of each of the next two years. Two years from now, the project can be repeated at a higher up- front cost of P125,000, but the cash inflows will remain the same. Project B has an up-front cost of P100,000, and it is expected to produce cash inflows of P41,000 per year at the end of each of the next four years. Project B cannot be repeated. Both projects have a cost of capital of 10 percent. NUBD wants to select the project that provides the most value over the next four years. What is the net present value (NPV) of the project that creates the most value for NUBD? (Use replacement chain method) *
NUBD must choose one of two mutually exclusive projects. Project A has an up-front cost (t 0) of P120,000, and it is expected to produce cash inflows of P80,000 per year at the end of each of the next two years. Two years from now, the project can be repeated at a higher up- front cost of P125,000, but the cash inflows will remain the same. Project B has an up-front cost of P100,000, and it is expected to produce cash inflows of P41,000 per year at the end of each of the next four years. Project B cannot be repeated. Both projects have a cost of capital of 10 percent. NUBD wants to select the project that provides the most value over the next four years. What is the net present value (NPV) of the project that creates the most value for NUBD? (Use replacement chain method) *
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:NUBD must choose one of two mutually exclusive projects. Project A has an up-front cost (t =
0) of P120,000, and it is expected to produce cash inflows of P80,000 per year at the end of
each of the next two years. Two years from now, the project can be repeated at a higher up-
front cost of P125,000, but the cash inflows will remain the same. Project B has an up-front
cost of P100,000, and it is expected to produce cash inflows of P41,000 per year at the end of
each of the next four years. Project B cannot be repeated. Both projects have a cost of capital
of 10 percent. NUBD wants to select the project that provides the most value over the next
four years. What is the net present value (NPV) of the project that creates the most value for
NUBD? (Use replacement chain method) * O
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