Suppose Pheasant Pharmaceuticals is evaluating a proposed capital budgeting project (project beta) that will require an initial investment of $2,225,000. The project is expected to generate the following net cash flows:year cash flowyear 1 $375,000year 2 $425,000year 3 $400,000year 4 $475,000Pheasant Pharmaceuticals' cost of capital is 9%, and project beta has the same risk as the firm's average project. Based on the cash flows, what is project beta's NPV? a) - $1,053,449b) - $477,874c) - $877,874d) - $1,009,555

Question

Business

Geovanni Zuniga

14 April, 10:27

Suppose Pheasant Pharmaceuticals is evaluating a proposed capital budgeting project (project beta) that will require an initial investment of $2,225,000. The project is expected to generate the following net cash flows:year cash flowyear 1 $375,000year 2 $425,000year 3 $400,000year 4 $475,000Pheasant Pharmaceuticals' cost of capital is 9%, and project beta has the same risk as the firm's average project. Based on the cash flows, what is project beta's NPV? a) - $1,053,449b) - $477,874c) - $877,874d) - $1,009,555

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Answers (1)

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Raelynn Bolton · Answer 1

c) - $877,874d

Explanation:

Net present value is the present value of after tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

Cash flow in:

Year 0 = $-2,225,000

year 1 = $375,000

year 2 = $425,000

year 3 = $400,000

year 4 = $475,000

I = 9%

NPV = $-877,873.94