Question
Several companies, including Barnyard and Energy Solutions Corporation, are considering project A, which is believed by all to have a level of risk that is
Several companies, including Barnyard and Energy Solutions Corporation, are considering project A, which is believed by all to have a level of risk that is equal to that of the average-risk project at Barnyard. Project A is a project that would require an initial investment of $77,000 and then produce an expected cash flow of $104,500 in 2 years. Project A has an internal rate of return of 7.72 percent. The weighted-average cost of capital for Barnyard is 10.12 percent and the weighted-average cost of capital for Energy Solutions Corporation is 5.12 percent. What is the NPV that Energy Solutions Corporation would compute for project A?
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