Question

Among the four proposals in Problem 2, what is the greatest numerical value for the net present value (NPV)? Write your answer as a dollar figure with two decimals. Thus, for example, if the proposals have NPV equal to $1234.56, $2345.67, $3456.78, and $4567.89, then your answer would be 4567.89 (do not include the $ symbol; just write the numerical value). Also, do not include the comma separating the thousands in your answer; that is, you would write 4567.89 instead of 4,567.89.

Problem 2 - Concession Stand 15% PB IRRI NPV Project Incremental Cash Flows Investment Year 1 Year 2 Year 3 (50.000) 2.12 1. Update Existing Equipment Sum of CFs 23.000 (27,000) 24.000 (3,000) 25.000 22.000 2. Add a New Window Sum of CFs (75,000 44,000 46,000 48,000 3. Build a New Stand Sum of CFs (125,000) 70,000 73,500 77,000 4. Rent a Larger Stand Sum of CFs (15,000) 12,000 12,000 12,000

Answer 1

Answer:

r=15%

Project 1

CF0=-50000

CF1=23000

CF2=24000

CF3=25000

NPV=CF0+CF1/(1+r)+Cf2/(1+r)^2+CF3/(1+r)^3

NPV=-50000+23000/(1+15%)+24000/(1+15%)^2+25000/(1+15%)^3

NPV=$4585.35 eq 1

Project 2

CF0=-75000

CF1=44000

CF2=46000

CF3=48000

NPV=CF0+CF1/(1+r)+Cf2/(1+r)^2+CF3/(1+r)^3

NPV=-75000+44000/(1+15%)+46000/(1+15%)^2+48000/(1+15%)^3

NPV=$29604.26 eq 2

Project 3

CF0=-125000

CF1=70000

CF2=73500

CF3=77000

NPV=CF0+CF1/(1+r)+Cf2/(1+r)^2+CF3/(1+r)^3

NPV=-125000+70000/(1+15%)+73500/(1+15%)^2+77000/(1+15%)^3

NPV=$42074.87 eq 3

Project 4

CF0=-15000

CF1=12000

CF2=12000

CF3=12000

NPV=CF0+CF1/(1+r)+Cf2/(1+r)^2+CF3/(1+r)^3

NPV=-15000+12000/(1+15%)+12000/(1+15%)^2+12000/(1+15%)^3

NPV=$12398.7 eq 4

From Equation 1 ,2,3,4 it is clear that greatest numerical value for NPV=42074.87