babygirl1501
New member
- Joined
- Jul 1, 2010
- Messages
- 13
A firm is considering the adoption of a project that is expected to generate revenues for 10 years. These expected revenues (in dollars) are:
Year 1 -200,000 Year 6 - 270,000 Year 10- 75,000
Year 2- 250,000 Year 7 - 255,000
Year 3- 300,000 Year 8 - 240,000
Year 4 - 300,000 Year 9 - 150,000
Year 5 - 280,000
The total cost of the project to be paid immediately upon adoption, is 1.6 million. Use a spreadsheet to compute the net present value of the project if:
A) The firm's cost of capital is 6 percent. Should the project be adopted?
B) The firm's cost of capital is 8 percent. Should the project be adopted?
Suppose the firm has a second project that requires an initial outlay of $800,000 and is expected to generate revenues for only five year, and those revenues are of the same amounts as given above for years 1 to 5. Use the same spreadsheet to compute the net present value of this project if:
C) The firm's cost of capital is 6 percent. Is this project one that the firm would like to adopt?
D) Its capital budget is 1 million and its cost of capital is 6 percent?
E) Its capital budget is 3 million and its cost of capital is 6 percent?
I caculated my formula for A as followed: 1.6million= 200,000/(1.06) +250,000/(1+.06)+300,000/ (1+.06)+300,000/(1.06)+280,000/(1+.06)+ 270,000/ (1+.06)+
255,000/(1+.06)+240,000/(1+.06)+150,000/(1+.06)+75,000/(1+.06)
Then I caculated the NVP =-1.6million+ 200,000/(1.06) +250,000/(1+.06)+300,000/ (1+.06)+300,000/(1.06)+280,000/(1+.06)+ 270,000/ (1+.06)+
255,000/(1+.06)+240,000/(1+.06)+150,000/(1+.06)+75,000/(1+.06)
My answer was 1,188,679.245
I thought that answer to A was yes they should adopt because the NVP is greater then zero.
I calculated capital with 8 percent the same just substituted the .06 for .08 in the equation. My answer for that was 1,148,148.148
so the answer for part b would be yes to adopt because the NVP is greater then zero.
Am I caculated this right?
I am not sure how to figure out D and E?
Year 1 -200,000 Year 6 - 270,000 Year 10- 75,000
Year 2- 250,000 Year 7 - 255,000
Year 3- 300,000 Year 8 - 240,000
Year 4 - 300,000 Year 9 - 150,000
Year 5 - 280,000
The total cost of the project to be paid immediately upon adoption, is 1.6 million. Use a spreadsheet to compute the net present value of the project if:
A) The firm's cost of capital is 6 percent. Should the project be adopted?
B) The firm's cost of capital is 8 percent. Should the project be adopted?
Suppose the firm has a second project that requires an initial outlay of $800,000 and is expected to generate revenues for only five year, and those revenues are of the same amounts as given above for years 1 to 5. Use the same spreadsheet to compute the net present value of this project if:
C) The firm's cost of capital is 6 percent. Is this project one that the firm would like to adopt?
D) Its capital budget is 1 million and its cost of capital is 6 percent?
E) Its capital budget is 3 million and its cost of capital is 6 percent?
I caculated my formula for A as followed: 1.6million= 200,000/(1.06) +250,000/(1+.06)+300,000/ (1+.06)+300,000/(1.06)+280,000/(1+.06)+ 270,000/ (1+.06)+
255,000/(1+.06)+240,000/(1+.06)+150,000/(1+.06)+75,000/(1+.06)
Then I caculated the NVP =-1.6million+ 200,000/(1.06) +250,000/(1+.06)+300,000/ (1+.06)+300,000/(1.06)+280,000/(1+.06)+ 270,000/ (1+.06)+
255,000/(1+.06)+240,000/(1+.06)+150,000/(1+.06)+75,000/(1+.06)
My answer was 1,188,679.245
I thought that answer to A was yes they should adopt because the NVP is greater then zero.
I calculated capital with 8 percent the same just substituted the .06 for .08 in the equation. My answer for that was 1,148,148.148
so the answer for part b would be yes to adopt because the NVP is greater then zero.
Am I caculated this right?
I am not sure how to figure out D and E?
