Suppose ABI Construction is considering investing in a new project of urban deve

Question

Suppose ABI Construction is considering investing in a new project of urban development. The cost of bringing the project to market is 10M, but ABI expects five years no incremental cash flows from the project to be $10M.

Using the calculated WACC in the previous question, What is the net present value of the project, and should ABI Construction go ahead with the project?" (WACC= 9.50%)

a) NPV=28.4M, and ABI should NOT go ahead with the project.

b) NPV=-5M, and ABI should go ahead with the project.

c) NPV=5M, and ABI should NOT go ahead with the project.

d) NPV=28.4M, and ABI should go ahead with the project.

Suppose ABI Construction is considering investing in a new project of urban development. The cost of bringing the project to market is 10M, but ABI expects five years no incremental cash flows from the project to be $10M.

Using the calculated WACC in the previous question, What is the net present value of the project, and should ABI Construction go ahead with the project?" (WACC= 9.50%)

Answers:

a) NPV=28.4M, and ABI should NOT go ahead with the project.

b) NPV=-5M, and ABI should go ahead with the project.

c) NPV=5M, and ABI should NOT go ahead with the project.

d) NPV=28.4M, and ABI should go ahead with the project.

Explanation / Answer

d) NPV=28.4M, and ABI should go ahead with the project.

Statement showing cash flows Solar Cells Particulars Time PVF Amoount PV Cash Outflows                   -             1.00 (10,000,000.00) (10,000,000.00) PV of Cash Outflows (10,000,000.00) Cash Inflows              1.00       0.9132      10,000,000.00        9,132,420.09 Cash Inflows              2.00       0.8340      10,000,000.00        8,340,109.67 Cash Inflows              3.00       0.7617      10,000,000.00        7,616,538.51 Cash Inflows              4.00       0.6956      10,000,000.00        6,955,742.93 Cash Inflows              5.00       0.6352      10,000,000.00        6,352,276.65 PV of cash In'flows      38,397,087.87 NPV      28,397,087.87

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