Example 1 A project requires an investment of $500,000 today. In one year, the project generates a Net Profit of $550,000. However, the cash flow will occur two years from today. Is this a worthwhile project? The opportunity cost of capital is 8%. Example 2 Lexa will replace its L22 Smartphone with the L30. Lexa is selling 10,000 units per year of the old model for $250;12,000 units of the new model will be sold at $400 each. Once the new model is introduced, sales of the old model will completely disappear. What is the incremental cash flow for the new model? Example 3 A pharmaceutical company has spent $50 million in R\&D expenses on a new drug. It is not clear that the drug will be profitable; therefore, the scientists have invited a company financial analyst to help determine whether to pursue this project further or no. The analyst figures that they need to spend another $25 million in manufacturing equipment, buildings, and other investments before the drug can be successfully marketed. What is the investment amount? Example 4 A gas-station owner has some extra space available on the lot. He could sell the space off for $1 million or construct a car repair garage for $750,000. What is the initial investment in the car repair garage facility? (How does the answer to Example 3 change if you are told that the $50 million spent on R\&D has created patents that could be sold for $20 million if the project is not implemented?) Example 5 A company is considering investing in a new project. Managers involved with this project will sometimes use the corporate jet. In order to evaluate the desirability of the new project, part of the hangar-rental expenses and fuel expenses will be allocated to the new project. Is this the correct way to allocate expenses for deciding whether the new project should be accepted or not