Question
The XYZ Corporation is evaluating the possibility of a new project. The project requires an initial investment of $2 million. The firm expects this project
The XYZ Corporation is evaluating the possibility of a new project. The project requires an initial investment of $2 million. The firm expects this project to generate net cash inflows of $500,000 at the end of the first year, $800,000 at the end of the second year, and $1,200,000 at the end of the third year. The company has a cost of capital of 10% and uses the Net Present Value (NPV) method for project evaluation. Given this information, what is the Net Present Value (NPV) of this project, and should the XYZ Corporation proceed with the project? A) The NPV is -$100,000 and the company should not proceed with the project. B) The NPV is $0 and the company should be indifferent towards the project. C) The NPV is $100,000 and the company should proceed with the project. D) The NPV is $200,000 and the company should proceed with the project. E) The NPV is -$200,000 and the company should not proceed with the project. (Note: The NPV of a project can be calculated using the following formula: NPV = [(CFt / (1+r)^t)] - C0, where CFt is the net cash inflow during the period t, r is the discount rate, and C0 is the initial investment.)
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