Question
Savory Seafood is a U.S. firm that wants to expand its business internationally. It is considering potential projects in both France and Canada, and the
Savory Seafood is a U.S. firm that wants to expand its business internationally. It is considering potential projects in both France and Canada, and the French project is expected to take six years, whereas the Canadian project is expected to take only three years. However, the firm plans to repeat the Canadian project after three years. These projects are mutually exclusive, so Savory Seafoods CFO plans to use the replacement chain approach to analyze both projects. The expected cash flows for both projects follow:
| Project: | French |
|---|---|
| Year 0: | $700,000 |
| Year 1: | $240,000 |
| Year 2: | $270,000 |
| Year 3: | $290,000 |
| Year 4: | $250,000 |
| Year 5: | $130,000 |
| Year 6: | $110,000 |
| Project: | Canadian |
|---|---|
| Year 0: | $490,000 |
| Year 1: | $250,000 |
| Year 2: | $265,000 |
| Year 3: | $275,000 |
If Savory Seafoods cost of capital is 13%, what is the NPV of the French project?
$161,238
$201,547
$211,624
$181,392
Assuming that the Canadian projects cost and annual cash inflows do not change when the project is repeated in three years and that the cost of capital will remain at 13%, what is the NPV of the Canadian project, using the replacement chain approach?
$229,967
$251,868
$219,016
$197,114
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
An Introduction To Real Estate Finance
Authors: Edward Glickman
1st Edition
0123786266, 9780123786265
