Question 1. Calculate the NPV for each of the following investments. The opportunity cost of capital is 20% for all four investments.
Investment Initial Cash Expenditures Year 1 Cash Flow
A ($10,000) $18,000
B ($ 5.000) $ 9,000
C ($ 5,000) $ 5,700
D ($ 2,000) $ 4,000
A. What is the NPV of each investment?
B. Which investment is the most valuable?
Question 2. A factory costs $800,000. You believe that it will produce an inflow after operating costs of $170,000 a year for 10 years. If the opportunity cost of capital is 14%, what is the NPV of the factory? What will the factory be worth at the end of five years?