Calco is a multi-divisional firm with a weighted cost of capital of 14 percent a
ID: 2629993 • Letter: C
Question
Calco is a multi-divisional firm with a weighted cost of capital of 14 percent and a risk-adjusted discount rate for its can division of 17 percent. A planned expansion in the can division requires a net investment of $170,000 and results in expected cash inflows of $42,000 a year for seven years. Should Calco invest in this expansion?
a. Yes, NPV = $10,096
b. Yes, NPV = $ 9,896
c. No, NPV = -$5,276
d. No, NPV = -$9,896
a. Yes, NPV = $10,096
b. Yes, NPV = $ 9,896
c. No, NPV = -$5,276
d. No, NPV = -$9,896
Explanation / Answer
NO because NPV will be negative in this project
Working:
NPV = (42000 *3.922)-170000 = -5276
Thanks
(CHIRAG NAGPAL)