You are considering a project that has been assigned a discount rate of 8 percent. If...

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Finance

You are considering a project that has been assigned a discountrate of 8 percent. If you start the project today (t=0), you willincur an initial cost of $980 and will receive cash inflows of $475a year for three years. If you wait one year to start the project,the initial cost will rise to $1,000 (at t=1) and the cash flowswill increase to $515 a year for three years (starting from yeart=2). Should you wait one year to start the project?
No, because NPV at t=0 is lower by $31.58
No, because NPV at t=0 is lower by $25.42
Yes, because NPV at t=0 is higher by $58.85
Yes, because NPV at t=0 is higher by $37.45
Yes, because NPV at t=0 is higher by $18.66

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3.9 Ratings (723 Votes)

Option c is correct We will compare the net present value of each project Net Present value NPV Present value of cash inflows Initial investment First we will check the NPV for starting the project now There will be annual cash inflows of 475 Since the annual cash inflows are same so it is an annuity We will find the value of present value of ordinary annuity of 1 at 8 See Answer

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You are considering a project that has been assigned a discountrate of 8 percent. If you start the project today (t=0), you willincur an initial cost of $980 and will receive cash inflows of $475a year for three years. If you wait one year to start the project,the initial cost will rise to $1,000 (at t=1) and the cash flowswill increase to $515 a year for three years (starting from yeart=2). Should you wait one year to start the project?No, because NPV at t=0 is lower by $31.58No, because NPV at t=0 is lower by $25.42Yes, because NPV at t=0 is higher by $58.85Yes, because NPV at t=0 is higher by $37.45Yes, because NPV at t=0 is higher by $18.66