Given the information in Table 10.1 and 15 percent cost of capital,
(a) compute the net present value.
(b) should the project be accepted?
What will be an ideal response?
(a) NPV = (1,000 / 0.15 ) x [1 - 1 / (1.15 )5] - 2,500
= 1,000 × (3.352 ) - 2,500 = $852
(b) Since NPV > 0, the project should be accepted.
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