Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. allen is analyzing a project and has determined th

allen is analyzing a project and has determined that the initial cost will be $760,000 and...

Free

90.2K

Verified Solution

Question

Finance

allen is analyzing a project and has determined that the initialcost will be $760,000 and the required rate of return needs to be12 percent. The project has a 60 percent chance of success and a 40percent chance of failure. If the project fails, it will generatean annual after-tax cash flow of $150,000. If the project succeeds,the annual after-tax cash flow will be $306,000. She has furtherdetermined that if the project fails, she will shut it down afterthe first year and sell the equipment for the after-tax salvagevalue of $300,000. If however, the project is a success, she canexpand it with no additional investment and increase the after-taxcash flow to $326,000 a year for Years 2-5. At the end of Year 5,the project would be terminated and have no salvage value. What isthe expected net present value of this project at Time 0?

$149,588.92

$110,676.38

$74,356.72

$95,094.23

$127,410.88

Answer & Explanation Solved by verified expert
4.2 Ratings (462 Votes)

Year Probable cash flow if success Probable cash flow if fail total cash flow PV Factor PV of cash flow
0 $        -7,60,000 1 $   -7,60,000.00
1 $                                        1,80,000 $                               1,83,600 $          3,63,600 0.892857 $     3,24,642.86
2 $                               1,95,600 $          1,95,600 0.797194 $     1,55,931.12
3 $                               1,95,600 $          1,95,600 0.71178 $     1,39,224.22
4 $                               1,95,600 $          1,95,600 0.635518 $     1,24,307.34
5 $                               1,95,600 $          1,95,600 0.567427 $     1,10,988.69
Net present vlaue 95094.23
Correct Option : THIRD
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

Which of the following occurs during a muscle contraction ? The distance between the z-discs lengthens The...

Medical Sciences
Q

Reflect on the advertising you encounter while watching a favorite TV show, reading a magazine or...

Psychology
Q

Read the Chapter 12 Mini-Case: A Change at the Top at Procter & Gamble: An Indication...

Operations Management
Q

Use an example form the text or one from the real world that illustrates the effective,...

General Management
Q

D Twelve equal resistances each of 2 2 form the edges of a cube If...

Physics
Q

1 04 A ship A is moving Westwards with a speed of 10 km h...

Physics
Q

Solve the compound inequality and write the answer using interval notation Simplify your answer completely...

Basic Math
Q

Suppose that prices of a gallon of milk at various stores in one town have...

Statistics
Q

The count in a bacteria culture was 300 after 15 minutes and 1800 after 35...

Algebra
Q

Suppose the rate of return on short-term government securities (perceived to be risk-free) is about...

Finance
Q

Under IFRS, how are gains and losses for treasury stock transactions treated? ...

Accounting
Q

A B Fabulous Fabricators needs to decide how to allocate space in its production facility...

Finance