9-4. The CFO of HairBrain Stylists is evaluating a project that costs $49,000. The project will...
9-4. The CFO of HairBrain Stylists is evaluating a project that costs $49,000. The project will generate $11,700 each of the next five years. If HairBrain's required rate of return is 8.5%, should the project be purchased?
Homework Answers
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=11700[1-(1.085)^-5]/0.085
=11700*3.940642079
=$46105.51
NPV=Present value of inflows-Present value of outflows
=$46105.51-$49000
=($2894.49)(Approx)(Negative).
Hence since NPV is negative;project should not be purchased.
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