Sonny and James are both considering the same project with the cash flows shown below.Sonny is content earning 8 per cent on the project but James wants to earn at least 12 per cent.Who,if either,should accept this project?
A)Sonny,but not James
B)James,but not Sonny
C)Sonny,James can either accept or reject as his NPV is zero
D)neither Sonny nor James
E)both Sonny and James

Question

Quizplus · Accepted Answer

To evaluate the project, we need to calculate the net present value (NPV) of the cash flows. Using an 8% discount rate, the NPV of the project is $1,017.36. However, using a 12% discount rate, the NPV of the project is -$407.56. This means that at a 12% discount rate, the project is not worth investing in as it would result in a negative NPV. Sonny, who is content earning 8%, can accept the project as it has a positive NPV at his desired rate of return. However, James will not accept the project as it does not meet his minimum required rate of return of 12%.

Sonny and James Are Both Considering the Same Project with the Cash