Net present value. Lepton Industries has three potential projects, all with an initial cost of $1,600,000. The capital budget for the year will allow Lepton to accept only one of the three projects. Given the discount rate and the future cash flow of each project in the following table, , determine which project Lepton should accept. Which project should Lepton accept? (Select the best response.) O A. Project Q O B. Project R Data Table OC. Project S O D. None of the projects (Click on the following icon e in order to copy its contents into a spreadsheet.) Cash Flow Project Q Project R Project S Year 1 $400,000 $500,000 $900,000 Year 2 $400,000 $400,000 $400,000 $400,000 $500,000 $700,000 $500,000 $300,000 $100,000 Year 3 $500,000 $500,000 Year 4 Year 5 $500,000 Discount rate 9% 13% 18%
Net present value. Lepton Industries has three potential projects, all with an initial cost of $1,600,000. The capital budget for the year will allow Lepton to accept only one of the three projects. Given the discount rate and the future cash flow of each project in the following table, , determine which project Lepton should accept. Which project should Lepton accept? (Select the best response.) O A. Project Q O B. Project R Data Table OC. Project S O D. None of the projects (Click on the following icon e in order to copy its contents into a spreadsheet.) Cash Flow Project Q Project R Project S Year 1 $400,000 $500,000 $900,000 Year 2 $400,000 $400,000 $400,000 $400,000 $500,000 $700,000 $500,000 $300,000 $100,000 Year 3 $500,000 $500,000 Year 4 Year 5 $500,000 Discount rate 9% 13% 18%
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
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Transcribed Image Text:**Net Present Value Analysis for Lepton Industries Projects**
**Introduction:**
Lepton Industries is evaluating three potential projects, each requiring an initial investment of $1,600,000. The company's annual capital budget allows for the selection of only one project. The decision will be based on a Net Present Value (NPV) analysis. Use the provided discount rates and future cash flows to determine which project Lepton should accept.
**Project Options:**
- A. Project Q
- B. Project R
- C. Project S
- D. None of the projects
**Future Cash Flows and Discount Rates:**
| Cash Flow | Project Q | Project R | Project S |
|-----------|-----------|-----------|-----------|
| Year 1 | $400,000 | $500,000 | $900,000 |
| Year 2 | $400,000 | $500,000 | $700,000 |
| Year 3 | $400,000 | $500,000 | $500,000 |
| Year 4 | $400,000 | $300,000 | $300,000 |
| Year 5 | $400,000 | $500,000 | $100,000 |
| Discount Rate | 9% | 13% | 18% |
**Decision Making:**
1. **Calculate the NPV** for each project using the respective discount rates.
2. **Select the project** with the highest positive NPV, as it represents the best financial return relative to the cost.
In this analysis, Lepton should select the project that provides the greatest net benefit as indicated by the calculations.
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