Stillwater Drinks Is Trying to Determine When to Harvest the Water

question 1

Multiple Choice

Stillwater Drinks is trying to determine when to harvest the water from the fountain of youth that it currently owns. If it harvests the water in year 1, the NPV of the project would increase over an immediate harvest by 18 percent. A year 2 harvest would create an NPV increase of 12 percent over that of year 1 and year 3 would create an NPV increase of 8 percent over that of year 2. If the cost of capital is 17 percent for Stillwater, then which harvest year would maximize the NPV for the firm? Assume that all NPVs are calculated from the perspective of today.

• A) Harvest immediately.
• B) Harvest in year 1.
• C) Harvest in year 2.
• D) Harvest in year 3.

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Definitions:

Personality

An individual's characteristic pattern of thinking, feeling, and acting, which makes them unique.

Ego

Ego, in Freudian psychology, is the component of the personality that is conscious, regulates behavior, and mediates between individual desires and the demands of reality.

Impulse

A sudden, involuntary urge to perform an action, often without premeditation.

Pleasure Principle

A psychoanalytic concept that suggests the driving force of behavior is the desire to maximize pleasure and avoid pain, guiding the id aspect of personality.