Split is considering two investment alternatives with the following cash flows: Option A: Year 1 $ 20,000, Year 2 $21,000, Year 3 $18,500, Year 4 $6,000 Option B: Year 1 $20,000, Year 2 $ 25,000, Year 3 $15,000, Year 4 $4,000, Year 5 $1,000 Both options cost $25,000. The cost of capital is 12%. What is the NPV of the most desirable option?
Split is considering two investment alternatives with the following cash flows: Option A: Year 1 $ 20,000, Year 2 $21,000, Year 3 $18,500, Year 4 $6,000 Option B: Year 1 $20,000, Year 2 $ 25,000, Year 3 $15,000, Year 4 $4,000, Year 5 $1,000 Both options cost $25,000. The cost of capital is 12%. What is the NPV of the most desirable option?
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 14P
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Transcribed Image Text:Split is considering two investment alternatives with the following cash flows: Option A: Year 1 $
20,000, Year 2 $21,000, Year 3 $18,500, Year 4 $6,000 Option B: Year 1 $20,000, Year 2 $
25,000, Year 3 $15,000, Year 4 $4,000, Year 5 $1,000 Both options cost $25,000. The cost of
capital is 12%. What is the NPV of the most desirable option?
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