Question

OmegaTech is considering project A. The project would require an initial investment of $59,800.00, and then have an expected cash flow of $74,600.00 in 4 years. Project A has an internal rate of return of 9.95 percent. The weighted-average cost of capital for OmegaTech is 6.94 percent. Which one of the following assertions is true?

A. None of the other alternatives are correct
B. The NPV that OmegaTech would compute for project A is less than or equal to -$11.77.
C. The NPV that OmegaTech would compute for project A is greater than -$11.77 but less than $11.77.
D. The NPV that OmegaTech would compute for project A is equal to greater than $11.77.
E. The NPV that OmegaTech would compute for project A can not be computed from the information provided

Answer 1

By using the NPV formula with the given cash flow, investment, time period, and WACC, we can compute the NPV of OmegaTech's Project A to assess its viability.

Step-by-step explanation:

To determine whether assertion C is true and compute the Net Present Value (NPV) of Project A for OmegaTech, we can apply the NPV formula: NPV = Cash Flow / (1 + r)^t - Initial Investment, where r is the discount rate, and t is the number of time periods until the cash flow is received.

With an initial investment of $59,800 and an expected cash flow of $74,600 in 4 years, and considering OmegaTech's weighted-average cost of capital (WACC) of 6.94 percent, we calculate the NPV as follows:

NPV = $74,600 / (1 + 0.0694)^4 - $59,800

Given the information provided, the NPV for Project A can be computed and compared to OmegaTech's WACC to determine if the project should be accepted.