Please show full work if possible, would like to be able to understand the problem and...

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Finance

Please show full work if possible, would like to be able tounderstand the problem and solution.
Leo company is considering a new venture in office equipment. Itexpects the cost of
acquisition of land and building to be $100,000. Leo companyexpects cash flows to be $40,000
the first year and $45,000 for the next 4 years. It willdiscontinue the furniture operation upon
the completions of the 5th year. Assume no salvage value. Thecompany’s WACC is 10%.
6. What is Leo company’s NPV and should they accept or rejectthe project? Assume no other
projects exist and that NPV should be used to make thedecision.
A. $75,120; accept project
B. $66,040; accept project
C. $80,230; accept project
D. $(8,090); reject project
E. $(9,324); reject project

Answer & Explanation Solved by verified expert

4.0 Ratings (698 Votes)

NPV Difference between Present value of inflow and Present value of Outflow Outflows here is only 100000 which is to be incurred in the present year itself Inflows are 40000 in year one and 45000 from year See Answer

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Please show full work if possible, would like to be able tounderstand the problem and solution.Leo company is considering a new venture in office equipment. Itexpects the cost ofacquisition of land and building to be $100,000. Leo companyexpects cash flows to be $40,000the first year and $45,000 for the next 4 years. It willdiscontinue the furniture operation uponthe completions of the 5th year. Assume no salvage value. Thecompany’s WACC is 10%.6. What is Leo company’s NPV and should they accept or rejectthe project? Assume no otherprojects exist and that NPV should be used to make thedecision.A. $75,120; accept projectB. $66,040; accept projectC. $80,230; accept projectD. $(8,090); reject projectE. $(9,324); reject project