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A) The company should not invest in the provided project due to the negative NPV of the project.
B) The NPV of the project comes out to be (286).
<h3>What is NPV?</h3>NPV is an abbreviated form of Net present value and computed by deducting the cash outflows from cash inflows at the present value.
Given values:
Cash flow of year 1: $10,000
Cash flow of year 2: $10,000
Cash flow of year 3: $2,000
Cash outflow (cost of investment) =$20,000
Step-1 Computation of PV of cash inflows of every year:
PV of year 1 = Cash inflow of year 1 / (1+ interest rate)^ 1
= $10,000 / (1+0.07) ^ 1
= $10,000 X 0.934579
= $9,346
PV of year 2 = Cash inflow of year 1 / (1+ interest rate)^ 2
= $10,000 / (1+0.07) ^ 2
= $10,000 X 0.873438
= $8,735
PV of year 3= Cash inflow of year 1 / (1+ interest rate)^ 3
= $2,000 / (1+0.07) ^ 2
= $2,000 X 0.816297
=$1,633
Step-2 Computation of total amount of PV of cash inflows:
Step-3 Computation of NPV:
Therefore, the NPV comes out to be a negative amount of 286, and hence, the company should not accept the project.
Learn more about the net present value in the related link:
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Initial price, P₀ = $1.25
Initial demand, Q₀ = 30 million
New price, P₁ = $1.75
New demand, Q₁ = 35 million
By definition, price elasticity is
η = (5/65)/(0.5/3)
= 0.4615
Answer: η = 0.46 (nearest hundredth)
This means that greater demand makes it possible to increase the price. Usually, this is not the case because lowering the price increases sales.
Initial demand, Q₀ = 30 million
New price, P₁ = $1.75
New demand, Q₁ = 35 million
By definition, price elasticity is
η = (5/65)/(0.5/3)
= 0.4615
Answer: η = 0.46 (nearest hundredth)
This means that greater demand makes it possible to increase the price. Usually, this is not the case because lowering the price increases sales.