Question: You are also considering another project which has a physical life of 3 years; that is, the machinery will be totally worn out after 3

You are also considering another project which has a physical life of 3 years; that is, the machinery will be totally worn out after 3 years. However, if the project were terminated prior to the end of 3 years, the machinery would have a positive salvage value. Here are the project's estimated cash flows:

Using the 10 percent cost of capital, what is the project's NPV if it is operated for the full 3 years? Would the NPV change if the company planned to terminate the project at the end of year 2 at the end of year 1? What is the project's optimal (economic) life?

Initial Investment End-Of-Year And Operating Net Salvage Cash Flows Year Value $5,000 ($5,000) 2,100 3,100 2 2,000 2,000 What is each project's initial npv without replication?

Initial Investment End-Of-Year And Operating Net Salvage Cash Flows Year Value $5,000 ($5,000) 2,100 3,100 2 2,000 2,000 1,750 3.

Step by Step Solution

★★★★★

3.38 Rating (173 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Here are the time lines for the 3 alternative lives No termination 0 5000 NP... 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

Document Format (1 attachment)

9-B-F-M-C (379).docx

120 KBs Word File

Students Have Also Explored These Related Finance Questions!

You are also considering another project that has a physical life of 3 years; that is, the machinery will be totally worn out after 3 years. However, if the project were terminated prior to the end...

A planned factory expansion project has an estimated initial cost of $800,000. Based on a discount rate of 20 percent, the present value of the future cost savings from the expansion is $843,000....

You are considering a project with an initial cash outlay of $ 80,000 and expected free cash flows of $ 20,000 at the end of each year for 6 years. The required rate of return for this project is 10...

You have just graduated from the MBA program of a large university, and one of your favorite courses was Today's Entrepreneurs. In fact, you enjoyed it so much you have decided you want to "be your...

Chapter 10 - Mini Case You have just graduated from the MBA program of a large university, and one of your favorite courses was "Today's Entrepreneurs." In fact, you enjoyed it so much you have...

Serpents Den You have just graduated from the MBA program of a large university, and one of your favorite TV programs was "Serpents Den." In fact, you enjoyed it so much you have decided you want to...

Consider the following hash table of size 7, using the hash function h(key)= key%table size, insert the given key values in the table using respective collision resolution methods: a) Key = {76, 93,...

Rent the movie The Firm. At the conclusion, what evidence is used against the law firm and what statute applies? What does this statute have in common with legal actions that can be brought against...

1 . Pepsi is considering bringing back Pepsi Blue ( which it definitely should ) . Since they already have the formula and own the rights, the initial investment is really based solely on marketing....

Consider each situation separately. Identify the missing internal control procedure from these characteristics: Assignment of responsibilities Separation of duties Audits Electronic devices ...

As of June 30, 2016, the bank statement showed an ending balance of $19,500. The unadjusted Cash account balance was $15,200. The following information is available: 1. Deposit in transit, $2,400. 2....

The following control procedures are used at Gonzales Company for over-the-counter cash receipts. 1. To minimize the risk of robbery, cash in excess of $100 is stored in an unlocked attach case in...

Optix Camera Shop uses the lower-of-cost-or-market basis for its inventory. The following data are available at December 31. Instructions Determine the amount of the ending inventory by applying the...

Refer to Exercise 9-33. Orlando, the manager of the New York unit, is unhappy with the results of the controller's study. He asks the controller to develop separate rates for fixed and variable costs...

Consider the solution to the diffusion equation on a 4 4 rectangular grid with equal spacing in the x and y directions. The boundary conditions for the problem are Using the global index k and the...

b. Calculate the standard deviations for the market and Stock J.

(65) Expected Returns: Discrete Distribution The market and Stock J have the following probability distributions: a. Calculate the expected rates of return for the market and Stock J.

(426) Reaching a Financial Goal You need to accumulate $10,000. To do so, you plan to make deposits of $1,250 per yearwith the first payment being made a year from todayinto a bank account that pays...

(425) Repaying a Loan While Mary Corens was a student at the University of Tennessee, she borrowed $12,000 in student loans at an annual interest rate of 9%. If Mary repays $1,500 per year, then how...

b. How much will be in the account immediately after you make the first withdrawal? After the last withdrawal? 168 Part 2: Fixed Income Securities

Question 13 2 pts Age was a question asked on a survey that students filled out for a statistics class. Let m represent the age of a randomly selected male from our class. The probability...