Question

Kichi is considering investing 45 million USD to open 5 new restaurants in Vietnam. The Board of Director forecasts the net profit of EACH restaurant is 2 million USD for the 1 st year, 3.5 million USD for the second year, 1.5 million USD for the 3 rd year. The opportunity costs or the required rate of return of this project is 10% per year. Should the company accept this investment project? (Please round up to 0 decimal number)

Answer 1

To determine whether the company should accept this investment project, we need to calculate the net present value (NPV) of the project and compare it to zero. The formula for NPV is:

NPV = (CF1 / (1 + r)^1) + (CF2 / (1 + r)^2) + (CF3 / (1 + r)^3) - Initial investment

where CF is the cash flow for each year, r is the required rate of return, and the initial investment is 45 million USD.

Plugging in the given values, we get:

NPV = (2 / (1 + 0.1)^1) + (3.5 / (1 + 0.1)^2) + (1.5 / (1 + 0.1)^3) - 45

NPV = 1.8182 million USD

Since the NPV is positive, the company should accept the investment project as it is expected to generate a return greater than the required rate of return. Therefore, the company should invest 45 million USD to open 5 new restaurants in Vietnam.

Step-by-step explanation: