What is the projects net present value

Assignment Help Financial Management
Reference no: EM13765798

Garner-Wagner is considering investing in a project that requires an investment of $3,000,000. The project will generate a cash inflow of 500,000 per year for the next 5 years. The cost of capital is 10%. What is the project's net present value?

If Garner-Wagner goes ahead with this project today, it will obtain knowledge that will give rise to additional opportunities 5 years from now (at t = 5). The company can decide at t = 5 whether or not it wants to pursue these additional opportunities. Based on the best information available today, there is a 35% probability that the outlook will be favorable, in which case the future investment opportunity will have a net present value of $6 million at t = 5. There is a 65% probability that the outlook will be unfavourable, in which case the future investment opportunity will have a net present value of -$6 million at t- = 5. Garner-Wagner does not have to decide today whether it wants to pursue the additional opportunity. Instead, it can wait to see what the outlook is. However, the company cannot pursue the future opportunity unless it makes the $3 million investment today. What is the estimated net present value of the project, after consideration of the potential future opportunity?

Reference no: EM13765798

Questions Cloud

Write information technology project management : Write clearly and concisely about Information Technology Project Management topics using proper writing mechanics and technical style conventions.
Demand and supply shocks : Demand and Supply Shocks Which of the following can be inflationary?
What laws protect victims including use of protection orders : What information needs to be in the report and why, How best to help a victim, What laws protect victims, including the use of protection orders, Why victims return to abusers
The crime scene parameters of an arson fire : Describe the crime scene parameters of an arson fire, including one where an explosive reaction may have occurred.
What is the projects net present value : Garner-Wagner is considering investing in a project that requires an investment of $3,000,000. The project will generate a cash inflow of 500,000 per year for the next 5 years. The cost of capital is 10%. What is the project's net present value?
Unavailability of certain pharmaceutical items : How would you approach the physician and what are the reasons for the unavailability of certain pharmaceutical items because of third-party payer reimbursement schemes?
Compute the correlation coefficient of the two return series : Compute the covariance of the two return series. Compute the correlation coefficient of the two return series. Compute the risk of the portfolio.
What is the total profit : Its average fixed costs are $50. Its average variable costs are $25. What is the total cost (TC) of producing 1,000 units of output (Q)? If the price (P) of the good is $100 what is the total revenue? What is the total profit?
Create charts to illustrate data : Courtyard Medical Plaza (CMP) is a full-service medical office complex providing customers with a variety of medical services in one location. For this project you create charts to illustrate data about the number of procedures performed

Reviews

Write a Review

 

Financial Management Questions & Answers

  Market price-comparable market interest rates drop

What is the market price of a $1000, 8 percent bond if comparable market interest rates drop to 6 percent and the bond matures in 15 years?

  How are future values affected by changes in interest rates

How are future values affected by changes in interest rates?

  What is the net present value of spending

What is the Net Present Value (NPV) of spending $3,000 more today on an energy efficient hybrid car which will save you $900 a year for the next five years assuming you could invest this money elsewhere and earn 5%?

  What are the ethical issues

What are the ethical issues?

  What is the after-tax return on municipal bonds

Municipal bonds are currently offering investors a 6% return and corporate bonds with the same maturity and default risk are offering investors an 8% return. What is the after-tax return on municipal bonds for an investor in the 30% tax bracket?

  What is the amount of bid using options contract

What is the amount of bid using Borrowing and Lending, what is the amount of bid using Forward contract and what is the amount of bid using Options contract?

  Compute the effective cost of not taking the cash discount

Compute the effective cost of not taking the cash discount under the following trade credit terms:

  Mutually exclusive project

Project S costs $15,000, and its expected cash flows would be $4,500 per year for 5 years. Mutually exclusive Project L costs $37,500, and its expected cash flows would be $11,100 per year for 5 years. If both projects have a WACC of 14%, which proje..

  Measure for an asset held in a diversified portfolio

Which is the best measure of risk for a single asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?

  Individual assignment

To help prepare for the team Business Plan, all students complete an individual paper on a topic of their choice. See the Individual Assignment Grading Rubric in Doc Sharing for the list of topic choices and the paper requirements.

  What is the weighted average cost of capital to the firm

The risk free rate is 3%, measured by a long-term U.S. government bond. The total market return is expected to be 11% over the foreseeable future. The Beta coefficient is 3.0 on the CAPM when finding out its hurdle rate for the project. The company e..

  Assumption for future dividend growth rate

Our company is Target? First search the Yahoo finance and find the target data? Use dividend discount model to calculate the cost of equity Explain and conceptually justify your assumption for future dividend growth rate

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd