Question 1
Edmondson Electric Systems is considering a project that has the following cash flow and WACC data. What is the project’s NPV?
| | | | | | | | |
| | WACC: | 11.00% | | | | |
| | Year: | 0 | 1 | 2 | 3 |
| | Cash flows: | –$1,000 | $600 | $600 | $600 |
| | | | | | | | |
◦
$440.43
◦
$466.23
◦
$470.38
◦
$478.80
Question 2
Energy Project Beta has the following cash flows:
CF 0 –$4,500
CF 1 $0
CF 2 $0
CF 3 $1,200
CF 4 $3,400
CF 5 $7,500
If this project has a required rate of return of 11%, will management accept or reject the project?
◦
Management would reject the project because there are no positive cash flows in years 1 and 2.
◦
Management would accept the project because the project has an NPV of $5,000.
◦
Management would accept the project because the project has an NPV of $4,147.
◦
Management would accept the project because the project has an NPV of $3,068.
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