Weghorst Co. is considering a three-year project requiring an initial investment of $55,000. It has been estimated that the annual cash flows for the project under good conditions will be $70,000 and $5,000 under bad conditions. The firm believes that there is a 60% chance of good conditions and a 40% chance of bad conditions. 1. If the firm is using a weighted average cost of capital of 13%, the expected net present value (NPV) of the project is what? (Round to the nearest whole dollar.) A.$34,224 B.$48,891 C.26,890 D.31,779 Weghorst Co. wants to take a potential growth option into account when calculating the project's expected NPV. If conditions are good, the firm will be able to invest $3,000 in year 2 to generate an additional cash flow of $23,000 in year 3. If conditions are bad, the firm will not make any further investments in the project. 2. Using the information from the preceding problem, the expected NPV of this project taking the growth option into account is? (Note: Round your answer to the nearest whole dollar.) A.$59,897 B.$51,341 C.62,750 D.57,045 3. Weghorst Co.'s growth option is worth? (Note: Round your answer to the nearest whole dollar.) A. 6,523 B.7,339 C.8,154 D.7,746 E. 9,785
Weghorst Co. is considering a three-year project requiring an initial investment of $55,000. It has been estimated that the annual cash flows for the project under good conditions will be $70,000 and $5,000 under bad conditions. The firm believes that there is a 60% chance of good conditions and a 40% chance of bad conditions.
1. If the firm is using a weighted average cost of capital of 13%, the expected
A.$34,224
B.$48,891
C.26,890
D.31,779
Weghorst Co. wants to take a potential growth option into account when calculating the project's expected NPV. If conditions are good, the firm will be able to invest $3,000 in year 2 to generate an additional cash flow of $23,000 in year 3. If conditions are bad, the firm will not make any further investments in the project.
2. Using the information from the preceding problem, the expected NPV of this project taking the growth option into account is?
(Note: Round your answer to the nearest whole dollar.)
A.$59,897
B.$51,341
C.62,750
D.57,045
3. Weghorst Co.'s growth option is worth? (Note: Round your answer to the nearest whole dollar.)
A. 6,523
B.7,339
C.8,154
D.7,746
E. 9,785
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
