NPV should be used to make the decision

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Reference no: EM132052796

Leo company is considering a new venture in office equipment. It expects the cost of acquisition of land and building to be $100,000. Leo company expects cash flows to be $40,000 the first year and $45,000 for the next 4 years. It will discontinue the furniture operation upon the completions of the 5th year. Assume no salvage value. The company’s WACC is 10%.

1. What is Leo company’s IRR? A. 24% B. 19% C. 10% D. 26% E. 33%

2. What is Leo company’s NPV and should they accept or reject the project? Assume no other projects exist and that NPV should be used to make the decision. A. $75,120; accept project B. $66,040; accept project C. $80,230; accept project D. $(8,090); reject project.

Reference no: EM132052796

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