Question
Orion Corp. is evaluating a proposal for a new project. It will cost $50,000 to get the undertaking started. The project will then generate cash
Orion Corp. is evaluating a proposal for a new project. It will cost $50,000 to get the undertaking started. The project will then generate cash inflows of $20,000 in its first year and $16,000 per year in the next five years, after which it will end. Orion uses an interest rate of 15% compounded annually for such evaluations.
1. Calculate the "Net Present Value" (NPV) of the project by treating the initial cost as a cash out-flow (a negative) in the present, and adding the present value of the subsequent cash inflows as positives
2. What is the implication of a positive NPV? (Words only.)
3. Suppose the inflows ere somewhat lower, and the NPV turned out to be negative. What would be the implication of the result? (Words only.)
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