Question: 4) B. Ltd. is considering an R&D project with initial outlay of 20 lac at present and a further outlay of ? 15 lac

4) B. Ltd. is considering an R&D project with initial outlay of 20 lac at present and a further outlay of ? 15 lac at the end of first year. The project will generate cash inflow only after two years from now & will depend upon the state of economy: Good (G) & Bad (B). The probability of Good state in 1st year is 75%. The probability of Good state in 2nd year, as welI, is 80%. There is only 30% probability of a Good state succeeding a Bad state. The cash inflows at the end of 2nd year will be: CFac = +200 lac CFac = +20 lac CFas = +120 lac %3D CFas =- 100 lac The company has the option of abandoning the project at the end of first year. The scrap value of ? 9 lac will be realized and no further investment will be required. Evaluate the value of this option if cost of capital is 10 percent. What will be the NPV of this project, if the supplier is charging 1 lac extra for this abandonment facility? How much extra should the company be willing to pay for this facility of abandonment? Page 1 of 2

Step by Step Solution

★★★★★

3.43 Rating (153 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Date Page Vauiaus puobatultu Bad 25 Good 75 Bad Good Bad 201 Good 701 3... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!

3-year treasury securities beginning two years from now are expected to yield 5.75%, whereas a 2-year Treasury security is currently yielding 5%. A 2-year security is expected to yield 6.2% beginning...

Sutton Pty Ltd is considering an investment project with an initial outlay of $110 000. Listed below are the estimated cash flows relevant to the project. The cash flows are equal to net profit...

An investment requires an outlay of $100,000 today. Cash inflows from the investment are expected to be $40,000 per year at the end of years 4, 5, 6, 7, and 8. If you require a 20 percent rate of...

Abandonment Decision for some projects, it may be advantageous to terminate the project early. For example, if a project is losing money, you might be able to reduce your losses by scrapping out the...

Axis Corp. is considering investment in the best of two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $45,000 and generate cash inflows of...

Most firms generate cash inflows every day, not just once at the end of the year. In capital budgeting, should we recognize this fact by estimating daily project cash flows and then using them in the...

Your firm, Agrico Products, is considering a tractor that would have a net cost of $36,000, would increase pretax operating cash flows before taking account of depreciation by $12,000 per year, and...

This exercise continues the Lawlor Lawn Service, Inc., situation from Exercise 20-33 of Chapter 20. Lawlor Lawn Service is considering purchasing a mower that will generate cash inflows of $9,000 per...

The financial manager at Starbuck Industries is considering an investment that requires an initial outlay of $25,000 and is expected to result in cash inflows of $3,000 at the end of year 1, $6,000...

Project Alpha requires an initial outlay of $35,000 and results in a single cash inflow of $56,367.50 after five years. a. If the cost of capital is 8%, what are Alphas NPV and PI? Is the project...

Determine the value of c P ( c Z c ) = 0 . 9 3 1 2

Blue Lagoon Corporation provides low-cost food delivery services to senior citizens. At the end of the year on December 31 , 2024, the company reports the following amounts: In addition, the company...

Jamie Lee Jackson, age 25, a busy full-time student and part-time bakery clerk, has been trying to organize her priorities, including her budget. She has been wondering if she is allocating enough of...

Customer Service E-mail You recently paid $250 to Keller & Jenkins for adding a provision in your will to establish a scholarship endowment at your alma mater. While eating lunch in a crowded...

1. When a member with a minority interest in an LLC acquires enough ownership interests in the LLC to hold a majority interest: a. a change of ownership occurs b. reassessment of the entire parcel of...

13) On December 31, 2023, Vivid Corporation prepared adjusting entries that included the following items: Depreciation expense: $43,400. Accrued sales revenue: $40,600. Accrued expenses: $16,800....

CS 1113 Practice Exa Questions Pace 2 of 3 )String"ab7.0 )double[10) a - neu doable10) k)doubleD)- (1,2,3) Supposn you nun a Jana program GoPls wih the coand ava GoPokes Drange Pover Ride What does...

Fahrad Inc. sells all of its product on account. Fahrad has the following accounts receivable payment experience: Percent paid in the month of sale .........10 Percent paid in the month after the...

Identify whether the following liabilities would be classified as current or non-current as at the end of the reporting period.

How may an opportunity cost be relevant in a make or buy decision?

Potter Ltd arranges a 91-day commercial bill: 91 days because the 90th day was a Sunday. The face value is $100 000 and Potter receives $98 505.00. What is the yield?

1. Define emotions.

4. How would you respond to the motherdaughter conflict, or schoolfun conflict described in the section on dialectical thinking above? Try writing out your responses to these vignettes and discuss...

9. 3. Explain how cultures regulate basic emotions.