Equipment will be depreciated straight-line to zero

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Reference no: EM13953750

The Blue Moon is considering a 4-year project that requires an investment of $2.8 million for new equipment. This equipment will be depreciated straight-line to zero over the life of the project and will be worthless thereafter. The project is expected to produce cash inflows of $1 million a year for 4 years. The firm’s WACC is 11.5 percent. Management uses the subjective approach for setting required returns for projects and has set the adjustment for this project at +1.5 percent. Should this project be accepted? Why or why not?

a. yes; The NPV is $174,471.33.

b. yes; The NPV is $269,613.80.

c. no; The NPV is -$11,408.19.

d. no; The NPV is -$128,358.58.

Reference no: EM13953750

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