Following Details Are Provided by Dopler Company Refer to the Following Table for PV Factors

question 47

Multiple Choice

Following details are provided by Dopler Company.
$$\begin{array} { | c | l | } \hline \text { Initial investment } & \$ 2,000,000 \\\hline \text { Discount rate } &12\% \\\hline \text { Yearly cash flows } & \\\hline 1 & \$ 208,000 \\\hline 2 & \$ 408,000 \\\hline 3 & \$ 408,000 \\\hline 4 & \$ 408,000 \\\hline 5 & \$ 208,000 \\\hline\end{array}$$
Refer to the following table for PV factors:
$$\begin{array} { | l | r | r | r | r | } \hline & { \mathbf { 1 0 } \% } & { \mathbf { 1 1 } \% } &{ \mathbf { 1 2 } \% } & { \mathbf { 1 3 } \% } \\\hline 1 & 0.909 & 0.901 & 0.893 & 0.885 \\\hline 2 & 0.826 & 0.812 & 0.797 & 0.783 \\\hline 3 & 0.751 & 0.731 & 0.712 & 0.693 \\\hline 4 & 0.683 & 0.659 & 0.636 & 0.613 \\\hline 5 & 0.621 & 0.593 & 0.567 & 0.543 \\\hline\end{array}$$
Calculate the NPV of the project.

• A) $950,000 negative
• B) $250,000 positive
• C) $821,160 negative
• D) $1,005,000 positive

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Definitions:

Interest-Rate Cost of Borrowing

The cost associated with borrowing funds, typically expressed as a percentage of the amount borrowed.

R&D Expenditure

Funds allocated by a business or government towards research and development projects to innovate or improve products or services.

Added Profit

The additional profit generated from an activity or investment beyond the usual or expected return.

Expected-Rate-of-Return-Curve

A graphical representation that shows the relationship between the expected return on investment and the level of investment risk.