Author Question: Steve Hawke is a football star who has been offered contracts by two different teams. The payments ... (Read 49 times)

Tiffanyanne824 · **on:** Aug 7, 2023

Question 1

Sorenson Stores is considering a project that has the following cash flows:

Year	Cash Flow
0	CF₀ = ?
1	$3,000
2	4,000
3	2,000
4	3,500

The project has a payback of 2.8 years, and the firm’s cost of capital is 13%. What is the project’s NPV?

◦

$720.17

◦

$765.91

◦

$849.80

◦

$891.32

Question 2

Steve Hawke is a football star who has been offered contracts by two different teams. The payments (in millions of dollars) under the two contracts are shown below:

	Team A	Team B
Year	Cash Payment	Cash Payment
0	$9.0	$3.0
1	5.0	5.0
2	5.0	5.0
3	5.0	10.0
4	5.0	9.0

Steve plans to accept the contract that provides him with the highest NPV. At what discount rate would he be indifferent between the two contracts?

◦

9.66%

◦

10.65%

◦

11.35%

◦

12.55%

Talvinder.Singh · **Reply #1 on:** Aug 7, 2023

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