Answered: Find the net present value. 2) Should…

Business

Finance

Find the net present value. 2) Should you take this project?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 11PROB

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

100%

A project costs $1500 today, yields $300 per year for three years and $700 for two years. Then there is an expense of $500 at the end of the project. The interest rate is 7% per annum. 1) Find the net present value. 2) Should you take this project?

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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