Problem
Not what you're looking for?
Virus Stopper Inc., a supplier of computer safeguard systems, uses a cost of capital of 12 percent to evaluate average-risk projects, and it adds or subtracts 2 percentage points to evaluate projects of more or less risk. Currently, two mutually exclusive projects are under consideration. Both have a cost of $200,000 and will last 4 years. Project A, a riskier-than-average project, will produce annual end-of-year cash flows of $71,104. Project B, a less-than-average-risk project, will produce cash flows of $146,411 at the end of years 3 and 4 only. Virus stopper should accept
a. B with a NPV of $10,001
b. Both A and B because both have NPVs greater than zero
c. B with a NPV of $8,042
d. A with a NPV of $7,177
e. A with a NPV of $15,968
Purchase this Solution
Solution Preview
choose (a) B with a NPV of $10,001.
Calculate required returns on A and B:
Project A High risk kRisk adjusted = 12% + 2% = 14%.
Project B Low risk kRisk adjusted = 12% - 2% = 10%.
Tabular solution:
NPVA = $71,104(PVIFA"%,") - $200,000
= ...
Purchase this Solution
Free BrainMass Quizzes
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.