Suppose Black Sheep Broadcasting Company is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $400,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $350,000 Year 2 $475,000 Year 3 $400,000 Year 4 $400,000 Black Sheep Broadcasting Company’s weighted average cost of capital is 10%, and project Alpha has the same risk as the firm’s average project. Based on the cash flows, what is project Alpha’s net present value (NPV)? $884,475 $484,475 $1,061,370 $1,017,146 Black Sheep Broadcasting Company’s decision to accept or reject project Alpha is independent of its decisions on other projects. If the firm follows the NPV method, it should ___________ project Alpha. reject accept
Suppose Black Sheep Broadcasting Company is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $400,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $350,000 Year 2 $475,000 Year 3 $400,000 Year 4 $400,000 Black Sheep Broadcasting Company’s weighted average cost of capital is 10%, and project Alpha has the same risk as the firm’s average project. Based on the cash flows, what is project Alpha’s net present value (NPV)? $884,475 $484,475 $1,061,370 $1,017,146 Black Sheep Broadcasting Company’s decision to accept or reject project Alpha is independent of its decisions on other projects. If the firm follows the NPV method, it should ___________ project Alpha. reject accept
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 18P
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Question
Suppose Black Sheep Broadcasting Company is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $400,000. The project is expected to generate the following net cash flows:
|
Year
|
Cash Flow
|
|---|---|
| Year 1 | $350,000 |
| Year 2 | $475,000 |
| Year 3 | $400,000 |
| Year 4 | $400,000 |
Black Sheep Broadcasting Company’s weighted average cost of capital is 10%, and project Alpha has the same risk as the firm’s average project. Based on the cash flows, what is project Alpha’s net present value (NPV)?
$884,475
$484,475
$1,061,370
$1,017,146
Black Sheep Broadcasting Company’s decision to accept or reject project Alpha is independent of its decisions on other projects. If the firm follows the NPV method, it should ___________ project Alpha.
reject
accept
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