Question
A financial analyst in Pitts Sock Company prepared a capital budgeting analysis. The analyst calculated an NPV of $150,000 for the project. You just realized
A financial analyst in Pitts Sock Company prepared a capital budgeting analysis. The analyst calculated an NPV of $150,000 for the project. You just realized that the initial cash flow related to buying new equipment had a typo. The analysis was based on a purchase price of $10,000; however, the actual cost should have been $100,000. Which of the following is correct?
A. If the analysis were rerun with the correct initial purchase price, the NPV would be a negative number
B. If the analysis were rerun with the correct initial purchase price, the NPV would be $60,000
C. If the analysis were rerun with the correct initial purchase price, the NPV would be $240,000
D. The impact on NPV cannot be calculated with the information above
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