Q5 ch 10

Ethics Problem Daane Dennison is a financial analyst working for a large chain of discount retail stores. Her company is looking at the poss blity of replacing the existing fluceescent lights in all of its stores with LED lights. The main advantage of making this switeh is that the LED lights are much more efficient and cost less to operate. In addition, LED lights last much longer and will have to be replaced after ten years, whereas the existing lights heve to be replaced after five years. Of course, making this change will require a large investment to purchase new LED lights and to pay lor the labor of switching out tens of thousands of bulbs. Dlane plans to use a 10-year horizon to analyze this proposal, figuring that changes to lighting technology will eventualy make this imvestment obsclete. Diane's triend and coworker, David, has analyzed another energy-saving imestment opportunity that involves replacing ouldoor lighting with solar-powered fuxtures in a few of the company's slores. David also used a 10-year horizon to conduct his analysis. Cash flow forecasts for each project are given here . The compary uses a 10 \& discount fale to analyze capital budgeting proposals. a. What is the NPV of each iwestment? Which investment (t either) should the company undertake? b. David approaches Diane for a favor. David says that the solar lighting project is a pet project of his boss, and David realy wants to get the project approved to curry favor with his boss. Ho suggests to Diane that they roll their two projects into a single proposal. The cash flows for this combined project would simply equal the sum of the two individual projects. Calculate the NPV of the combined project. Does it appear to be worth doing? Would you recommend investing in the combined project? c. What is the ethical issue that Dane faces? is any harm done if she does the favor for David as he asks? a. The NPV of the LED peoject is $ (Round to the nearest dollar.) The NPV of the solar project is s (Round to the nearest dollar) Which imestment (If either) should the company undertake? (Select the best answer below.) A. The company should choose the LED project because its NPV is positive. B. The company should choose the Solar project because its NPV is negative. c. The company should not choose either project. D. The company should choose both projects. anges to lighting technology wil eventualy make this imest tort Data table Tting with solar-powered fixtures in a few of the company's steres. uses a tot discount rale to analyze capital budgeting proposals. (Click on the icon here B in order to copy the contents of the data table below into a spredisheet,) to get the project approved to curry favor with his boss. He al the sum of the two individual projects. Calculate the NPV of the b. The NPV of the combined project is 5 (Round to the nearest dollar.) Does it appear to be worth doing? Would you recommend imvesting in the combined project? (Select the best answer below.) A. The combined project has a posive NPV, which means it is not worth doing in general. However, since the NPV of the Solar project is less than the combined project the solar project should be undertaken, not the combined project. B. The combinod project has a positve NPV, which means it is worth doing in general. However, since the NPV of the LED project is positive and the solar project is negative, the LED project should be undertaken, not the combined project c. The combined project has a positve NPV, which means it is worth doing in general. Since the NPV of the LED project has helped balance the negative NPV of the solar project, the combined project should be undertaken. D. The combined project has a postive NPV, which means it is worth doing in peneral. Since the NPV of the LED project is also positive, the project with the lowest NPV should be chosen. Which mears the combined project should be undertaken. c. What is the ethical issue that Dlane taces? is any harm done if she does the favor for David as he asks? (Select all answers that apgly.) A. If Diane does the tavor David asks, she is causing the compary to undertake the Solar Project, a propect that should be rejected, which is unethical. 8. By combining the projects, the Solar project, which should have been rejected, will be undertaken because the posibve NFV of the LED project makes it look acceptable. This is in the best interest of the company because both projects can be done. C. By combining the projects, the Sola propect, which should have been rejected. will be undertaken because the postive NPV of the LED project makes it look acceptable. This is not in the best interest of the company because the Solar project will lower the value of the company. D. When choosing between mutually exclusive projects that both have a positive NPV, the project with the largest NPV should be chosen. E. If Diane does the tavor David asks, she is causing the compary to undertake a project that should be rejected (the Solar project), which helps David look good for his boss and saves the company money by undertaking both projects. F. There is no harm done if Diane does the tavor David asiks because the company will spend the money on the projects anyway Q. When choosing between projects that both have a positive NPV, the project with the lowest NPY should be chosen