Adjusted net present value
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The Oak Grove Corporation is considering two mutually exclusive projects. Both require an initial outlay of $10,000 and will operate for 5 years. Project A will produce expected cash flows of $5,000 per year for years 1 through 5, whereas Project B will produce expected cash flows of $6,000 per year for years 1 through 5. Because project B is the riskier of the two projects, the management of Oak Grove Corporation has decided to apply a required rate of return of 15 percent to its evaluation but only a 12 percent required rate of return to project A. Determine each project's risk adjusted net present value.
Show calculations and select the correct answer from these multiple choice options:
A. Project A $9,154 and Project B $12,367.
B. Project A $8,950 and Project B $11,876.
C. Project A $8,025 and Project B $10,112.
D. Project A $7,659 and Project B $13,267.
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Solution Summary
The solution determines the adjusted net present value for Oak Grove Corporation.
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PV of expected cash flows associated with project A at 12% discount rate = ...
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