Suppose you have the following two mutually exclusive projects that you can carry out on the corner of 39th Street and Walnut Street: Build a daycare center or a health spa. Suppose the day care center has the following cash flows: An immediate cash outlay of $5,000 followed by inflows of $2500 in each of the next 3 years and zero thereafter. Suppose the health spa has the following cash flows: An immediate outlay of $5000 followed by inflows of nothing in year one, $1000 in year 2 and $7100 in year 3 and zero thereafter. If you base your investment decision on which investment has the highest NPV, which do you choose when the discount rate is 5%?
Suppose you have the following two mutually exclusive projects that you can carry out on the corner of 39th Street and Walnut Street: Build a daycare center or a health spa. Suppose the day care center has the following cash flows: An immediate cash outlay of $5,000 followed by inflows of $2500 in each of the next 3 years and zero thereafter. Suppose the health spa has the following cash flows: An immediate outlay of $5000 followed by inflows of nothing in year one, $1000 in year 2 and $7100 in year 3 and zero thereafter. If you base your investment decision on which investment has the highest NPV, which do you choose when the discount rate is 5%?
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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Suppose you have the following two mutually exclusive projects that you can carry out on the corner of 39th Street and Walnut Street: Build a daycare center or a health spa.
Suppose the day care center has the following cash flows: An immediate cash outlay of $5,000 followed by inflows of $2500 in each of the next 3 years and zero thereafter.
Suppose the health spa has the following cash flows: An immediate outlay of $5000 followed by inflows of nothing in year one, $1000 in year 2 and $7100 in year 3 and zero thereafter.
If you base your investment decision on which investment has the highest NPV, which do you choose when the discount rate is 5%?
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