(Answered) ation in 1 year. The company believes the cost a 40% change CFs will be $5 million for 4 years. cf pv factor @ 12% PV total * 60% —1800000 1...

ation in 1 year. The company believes the cost

 

a 40% change CFs will be $5 million for 4 years.

 

cf pv factor @ 12% PV total * 60%

 

—1800000 1...

This question was created from FINC 5880 WK 5 MidTerm /file/20952030/FINC-5880-WK-5-MidTerm/?focusQaId=10717348

 

I did not get the same answer for this question - first of all the cost of equipment is 18M - not 1.8 as used in this text. Also, I got a negative NPV for the low 40% case (should that not be considered?) Can you confirm that I thought this out correctly? Thanks!

 

HIGH 60%

 

YR Cash Flow PV

 

0 $0.00 $0.00 *wait one yr

 

1 -$18,000,000.00 -$18,000,000.00

 

2 $9,000,000.00 $8,035,714.29

 

3 $9,000,000.00 $7,174,744.90

 

4 $9,000,000.00 $6,406,022.23

 

5 $9,000,000.00 $5,719,662.71

 

6

 

$9,336,144.12

 

LOW 40%

 

YR Cash Flow PV

 

0 $0.00 $0.00 *wait one yr

 

1 -$18,000,000.00 -$18,000,000.00

 

2 $5,000,000.00 $4,464,285.71

 

3 $5,000,000.00 $3,985,969.39

 

4 $5,000,000.00 $3,558,901.24

 

5 $5,000,000.00 $3,177,590.39

 

6

 

-$2,813,253.27 Since this NPV is negative it would not be considered

 

EXPECTED

 

High 60.00% $5,601,686.47

 

Low - not considered 40.00% $0.00

 

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