A firm is considering investing in a project. The firm has a WACC of 14%. This p

Question

A firm is considering investing in a project.  The firm has a WACC of 14%.  This project costs $6,000 and is expected to product positive cash flows of $1,000 for 7 years.

Should the firm adopt this project?

Yes, because th project pays back the original investment and provides an additional $1,000 in positive cash flow.

Yes, because the ROI is 16.7%, which is higher than the firm's WACC.

Yes, because IRR is positive.

No, because NPV is negative. The costs are higher than the benefits.

Yes, because th project pays back the original investment and provides an additional $1,000 in positive cash flow.

Yes, because the ROI is 16.7%, which is higher than the firm's WACC.

Yes, because IRR is positive.

No, because NPV is negative. The costs are higher than the benefits.

Explanation / Answer

NPV = -1,711.70

No, because NPV is negative. The costs are higher than the benefits.

14.00% Cash flows Year Discounted CF            (6,000.00) 0 -6000.00               1,000.00 1 877.19               1,000.00 2 769.47               1,000.00 3 674.97               1,000.00 4 592.08               1,000.00 5 519.37               1,000.00 6 455.59               1,000.00 7 399.64

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