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XYZ Plumbing has a weighted average cost of capital of 9.13 percent. The firm is evaluating a two-year project called the big air project, which
XYZ Plumbing has a weighted average cost of capital of 9.13 percent. The firm is evaluating a two-year project called the big air project, which is believed by all to have a cost of capital of 9.3 percent. The project would involve an initial investment of $73,000, an expected cash flow of -$27,000 in one year, and expected cash flow of $138,000 in year two. DK's Barrel Factory has a lower weighted average cost of capital then XYZ Plumbing. Which of the following assertions is true? A) Since the expected cash flow for the big air project are not conventional the NPV cannot be computed B) It is not clear whether the NPV of the project computed by XYZ Plumbing would be less than, equal to, or greater than the NPV of the project computed by DK's Barrel Factory C) The NPV of the big air computed by XYZ Plumbing would be less than the NPV of the big air project computer by DK's Barrel Factory D) The NPV of the big air computed by XYZ Plumbing would be equal to the NPV of the big air project computer by DK's Barrel Factory E) The NPV of the big air computed by XYZ Plumbing would be greater than the NPV of the big air project computer by DK's Barrel Factory
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