Question
Fox Enterprises is considering expanding into the growing laser copier business. Fox estimates that this expansion will cost $1.8 million and will generate a 20-year
Fox Enterprises is considering expanding into the growing laser copier business. Fox estimates that this expansion will cost $1.8 million and will generate a 20-year stream of expected net cash flows amounting to $400,000 per year. The companys weighted cost of capital is 15 percent.
Compute the net present value of the laser copier project using the companys weighted cost of capital and the expected cash flows from the project.
Using the risk-adjusted discount rate approach, management has decided that this project has substantially more risk than average and has decided that it requires a 24 percent expected rate of return on projects like this. Recompute the risk-adjusted net present value of this project.
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