Question Details
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...
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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DATE ANSWEREDJan 02, 2020
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