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29 August, 15:53

Suppose Pheasant Pharmaceuticals is evaluating a proposed capital budgeting project (project beta) that will require an initial investment of $2,225,000. The project is expected to generate the following net cash flows:year cash flowyear 1 $375,000year 2 $425,000year 3 $400,000year 4 $475,000Pheasant Pharmaceuticals' cost of capital is 9%, and project beta has the same risk as the firm's average project. Based on the cash flows, what is project beta's NPV? a) - $1,053,449b) - $477,874c) - $877,874d) - $1,009,555

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  1. 29 August, 17:02
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    c) - $877,874d

    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

    Cash flow in:

    Year 0 = $-2,225,000

    year 1 = $375,000

    year 2 = $425,000

    year 3 = $400,000

    year 4 = $475,000

    I = 9%

    NPV = $-877,873.94
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