Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,500,000 with cash flows over the next six years of $200,000 (year one), $250,000 (year two), $300,000 (years three through five), and $1,750,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,400,000 with cash flows over the next four years of $400,000 (years one through three) and $3,000,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is 11.0% and the appropriate discount rate for the sports facility is 13.0%, If the appropriate discount rate for the restaurant is 13.0%, what is the NPV of the restaurant project?
Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,500,000 with cash flows over the next six years of $200,000 (year one), $250,000 (year two), $300,000 (years three through five), and $1,750,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,400,000 with cash flows over the next four years of $400,000 (years one through three) and $3,000,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is 11.0% and the appropriate discount rate for the sports facility is 13.0%, If the appropriate discount rate for the restaurant is 13.0%, what is the NPV of the restaurant project?
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter15: Capital Investment Analysis
Section: Chapter Questions
Problem 15.21E
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NPV unequal
lives.
Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of
$1,500,000
with cash flows over the next six years of
$200,000
(year one),
$250,000
(year two),
$300,000
(years three through five), and
$1,750,000
(year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of
$2,400,000
with cash flows over the next four years of
$400,000
(years one through three) and
$3,000,000
(year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is
11.0%
and the appropriate discount rate for the sports facility is
13.0%,
If the appropriate discount rate for the restaurant is
13.0%,
what is the NPV of the restaurant project?Expert Solution
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