Question
I don't understand the following question. I know the answer it E, but I'm not sure why. How is it possible to compute the NPV
I don't understand the following question. I know the answer it E, but I'm not sure why. How is it possible to compute the NPV ( = C(0) + [C(1)/(1+r)^1]...without knowing R? If it's considering Project A, the question has no indication of a cost of capital/risk associated with it. Help??
4. Bottleneck Industries is considering project A. The project has expected cash flows of -$30,000 today, $40,000 in 1 year, -$50,000 in 2 years, and $60,000 in 3 years. The weighted-average cost of capital for Bottleneck Industries is 26.53 percent. Which one of the following assertions is true?
A. The NPV of project A cannot be computed, because the projects expected cash flows are not conventional and it is impossible to compute the NPV of a project with expected cash flows that are not conventional
B. The NPV of project A equals an amount that is less than or equal to $5.00
C. The NPV of project A equals an amount that is greater than $5.00 but less than $5.00
D. The NPV of project A equals an amount that is equal to or greater than $5.00
E. Even though project As expected cash flows are not conventional and even though it is possible to compute the NPV of a project with expected cash flows that are not conventional, the NPV of project A can not be compute
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