Kwon Jewelers is evaluating a 1-year project that would involve an initial investment in equipment of $32,000 and an expected cash flow of $36,000 in 1 year.The project has a cost of capital of 8.36 percent and an internal rate of return of 12.50 percent. If Kwon Jewelers were to use $32,000 in cash from its bankaccount to purchase the equipment, the net present value of the project would be $1,222.59. However, Kwon Jewelers has no cash in its bank account, sousing money from its account is not possible. Therefore, the firm would need to borrow money to raise the $32,000. If Kwon Jewelers were to borrow moneyto raise the $32,000, the interest rate on the loan would be 13.47 percent. Kwon Jewelers would receive $32,000 at the start of the project and would pay$36,310 one year later. What is the NPV of the project if Kwon Jewelers borrows $32,000 to pay for the project?$1,222.59 (plus or minus 3 dollars)$0.00 (plus or minus 3 dollars)$-273.55 (plus or minus 3 dollars)$1,509.04 (plus or minus 3 dollars)none of the answers are within 3 dollars of the correct answer

To calculate the net present value (NPV) of the project when Kwon Jewelers borrows $32,000 to pay…

Answered: Kwon Jewelers is evaluating a 1-year…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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