Questions 1-4 I. Suppose r-10% and you will receive $242 in two years. What is t
ID: 1153789 • Letter: Q
Question
Questions 1-4
I. Suppose r-10% and you will receive $242 in two years. What is the present value of this project? 2. Your software firm earns zero profits due to intense competition. You can develop a new prod- uct that will earn net profits of $1 milion for each of the next three years before the competition catches up. Should you develop it if the initial investment today is $2.7 million and if the annual interest rate is 10%? 3. Which of the following statements regarding the NPV rule and the rate of return rule is false? (a) Accept a project if its NPV >0. (b) Reject a project if the NPV 0. (d) Accept a project if its rate of return> opportunity cost of capital 4. Which of the following statements regarding the net present value rule and the rate of return rule is false? (a) Accept a project if NPV> cost of investment (b) Accept a project if NPV is positive. (c) Accept a project if return on investment exceeds the rate of return on an equivalent-risk investment in the financial market. (d) Reject a project if NPV is negative.Explanation / Answer
1.
Present Value, P = F/(1+r)^t
F, Future value = 242
t, year = 2
r, interest rate = 0.10
P = 242/(1.1)^2
P = $200
PS: According to Chegg rules, in the event of multiple questions only the first one is attempted.
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