Question

moes tavern is considering a project with an initial cost of $15 million that would produce cash flows of 3 million the first year, 4 million the second, 5 million in the third year, and 6 million per year for the final two years. If the required return is 10.8%, should moe undertake the project?

Answer 1

Answer:

YES

THE NPV IS POSTIVE. IT IS 2.2 MILLION

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  

Only projects with a positive NPV should be accepted. A project with a negative NPV should not be chosen because it isn't profitable.  

When choosing between positive NPV projects, choose the project with the highest NPV first because it is the most profitable.

Cash flow in year 0 =  $-15 million  

Cash flow in year 1 = 3 million

Cash flow in year 2 = 4 million

Cash flow in year 3 = 5 million

Cash flow in year 4 = 6 million

Cash flow in year 5 = 6 million

I = 10.8

NPV = 2.2 million

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute  

Answer 2

Brainly user above me beat to it,