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Ahat [919]
3 years ago
10

Suppose Happy Dog Soap Company is evaluating a proposed capital budgeting project (project Beta) that will require an initial in

vestment of $3,225,000. The project is expected to generate the following net cash flows:
Year Cash Flow
Year 1 $275,000
Year 2 $475,000
Year 3 $400,000
Year 4 $500,000

Happy Dog Soap Company's weighted average cost of capital is 8%, 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. -$5,056,663
b. -$1,831,663
c -$2,106,412
d. -$2,197,996
Business
1 answer:
Alekssandra [29.7K]3 years ago
5 0

Answer:

-$1,878,086.608

Explanation:

The computation of the net present value is shown below;

             (in dollars)                                         (in dollars)

Year Cash flows Discount factor Present value  

0             -3225000              1                             -3225000  (A)

1              275000           0.9259259259           254629.630

2             475000           0.8573388203           407235.940

3             400000           0.793832241               317532.896

4             500000           0.7350298528          367514.926

Total                                                                   1346913.392  (B)

Net present value                                           -$1,878,086.608 (A - B)

This is the answer but the same is not provided in the given options

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Answer:

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